Hardnews Exclusive: ‘Demonetisation is an Attack on the Cooperative Banking System’
Over 1,25,000 crores is stuck in the cooperative banking system in Kerala bringing the state economy to a grinding halt
Thrissur: Kerala Chief Minister Pinarayi Vijayan speaks in a very measured tone, but that does not really hide the difficult job that he is performing after the Union government demonetised high-value currency notes. In an exclusive interview that he gave to Hardnews last week in a government guest house in Thrissur, Vijayan explained how the impact of demonetisation in Kerala was different from that of other states. He explained that Kerala that has a robust cooperative banking sector finds itself saddled with Rs.1,25 lakh crores of useless money, that the RBI does not allow to be exchanged or deposited in commercial banks as these cooperative banks do not follow KYC norms. This has brought Kerala’s economy, hobbled by diminishing remittances from the gulf, to a grinding halt. There are job losses amongst 2.5 million migrant workers, who are forced to return to their homes in UP, Bihar, Jharkhand etc. There is agitation in the state due to these reasons and the ruling party is organising a human chain through the state. Vijayan also shared his worry over the growing radicalisation amongst the youth from the minorities.
( Some key excerpts from the interview)
How has Demonetisation impacted Kerala? The cooperative banks here have been devastated, we learn?
Its impact has been quite severe. After the end of their service tenure people return home with their lifetime earnings, which could run into lakhs, it is a normal practice in Kerala that they deposit the same amount in cooperative Banks. The reason for this is that the cooperative bank is in their native place, it does not require a lot of documentation and does not need the tedious process fulfilment of KYC norms. So if a man goes to deposit money, normally the manager knows everyone, even if he does not he can just ask some local people as everyone knows everyone and the accounts are opened and the money is promptly deposited. Every bank knows its customers. Normally there is never any problem, if there is one, they can check with others and resolve the issues, that is also only when there is an income tax issue. That’s the reason why there is no need to have KYC norms in cooperative banks.
Cooperative Banks came into being during Jawahar Lal Nehru’s time and are an accepted financial model. When we went in for globalisation an attempt to end the cooperative banking system was made, but the cooperative banks went to the Supreme Court and got relief. Only when a cash deposit is more than 25 lakhs that the bank is obligated to inform, as a norm, the Income Tax department. And all banks are complying with this order. So obviously income tax or evasion of tax was not an issue, they are functioning within the guidelines. What has happened after demonetisation is that lakhs of rupees are frozen in cooperative bank accounts, money that people have saved for a particular purpose: they have to get their daughter married, or build a house – now that purpose has got defeated. They cannot get that money out.
Cooperative banks were not keeping the money with themselves. They were giving easy loans and now they also want the money, so they have to go to the district banks, but they are being considered as individuals and not institutions and are bound by the weekly withdrawal limit of Rs 24000 only. This entire demonetisation policy and imposing of restrictions is a move against the cooperative banks. Mr Arun Jaitley has agreed that the cooperative Bank movement in Kerala is very good, and we were hoping that he will instruct the Reserve Bank of India to allow cooperative banks to operate under the normal banking procedures and guidelines. Mr Jaitley had agreed, and we were expecting him to withdraw the sanctions soon, but the very same evening after assuring us, they withdrew the permission from the district banks too. They announced that the District Banks were also unregulated by RBI and therefore should not be allowed normal transactions. In one stroke the cooperative movement of Kerala took a beating. Everyone in Kerala has been resisting this move as cooperative banking is a people’s movement, and government cannot let this die.
The demonetisation matter was taken up to the level of the Supreme Court also, but they said we are not going to interfere, but cooperative banks should be treated as equals.
Kerala that has a robust cooperative banking sector finds itself saddled with Rs.1,25 lakh crores of useless money, that the RBI does not allow to be exchanged or deposited in commercial banks as these cooperative banks do not follow KYC norms. This has brought Kerala’s economy, hobbled by diminishing remittances from the gulf, to a grinding halt. There are job losses amongst 2.5 million migrant workers, who are forced to return to their homes in UP, Bihar, Jharkhand etc. There is agitation in the state due to these reasons and the ruling party is organising a human chain through the state.
Demonetisation is a huge loss to the economy. There is over 1,25,000 crores frozen in cooperative banks. Due to this there has been so much of agitation in the state. Even last week all the cooperative bank officials visited homes and talked to their depositors. People have so much faith in the system that they are even now depositing the money with their cooperative banks.
There is no precedence anywhere in the world about demonetisation. Venezuela tried it, but they withdrew within a couple of days after the agitation. This government is just not bothered. People are suffering, many are dying, but the government has turned a blind eye to everyone. Just the other day, a worker in Kerala Electricity Board, went to deposit money in the State Bank of India branch, he could not even deposit his own money. Then and there itself he went and jumped off from the terrace of his house and died. People are dying in other parts of the country too.
What about the migrant workers in Kerala? Are they losing jobs?
Actually, we have around 2.5 million migrant workers who come from other states to work in Kerala. They are facing a serious problem. They cannot send money to their family back home. I have had a meeting with the banks and asked them to allow these workers to send money.
They work hard and save money to send to their homes. Why should they not be allowed to deposit money in the accounts of their family and relatives? This is not a new practice. Why should you ask for so many details? Don’t they have a right to send money to their sisters, wife, mother without being questioned and asked for all kinds of papers? Now so many workers are going back. Their income has reduced; employees don’t have money to pay.
This entire strategy of demonetisation is an act that has been implemented without any thought. No one has applied their mind regarding the consequences. When a Cabinet takes such a decision, they are supposed to also weigh the pros and cons. Such actions are only possible when you don’t function in a democratic fashion. You take decisions without consultations. This decision has been taken without any discussion.
In our country, as we all know, 500 and 1000 denomination notes constituted 86 percent of the currency. And suddenly you decide to withdraw all these notes in one stroke. It is only after withdrawing these notes that you start printing the new currency. Even if all the printing presses work 24/7 without interruption, it will take over 7 months to compensate for the currency that has been withdrawn from the market.
We have problems on every front. We have problems with salaried people too. We need to pay people, but the banks have no money. Even if people want to withdraw, they get only notes of Rs 2000. When the tab is of Rs 24000, they will get only Rs 5000.
Do you think that Kerala is getting discriminated against?
A policy of discrimination is being followed. There are reports that in the states where elections are to be held soon, they are sending more money. If that is the case then they are observing partiality. Not viewing states as equal is bad. Some are getting more access to money and some less.
There are reports of remittances coming down and workers from Kerala returning? What is your government’s understanding of the problem and what is it doing about it?
Kerala has huge remittances from people who go to the gulf to work. The economy is supported by remittances from the pravasi Indians. But now due to problems in the region, people have started coming back from there too. One of the reasons is the fall in oil prices; another reason is that the jobs are being given to natives only. To resolve the issue of employment for these returnees, we are planning to introduce a package program to enable the use of their expertise. The government is trying to build linkages in various firms. We are looking at setting up institution based support so that there is immediate linkage established and people are absorbed, and jobs can be arranged. If we manage this properly, I am confident it can work.
The agitations are on. Even the Cabinet members have done a one-day satyagraha, people are protesting every day. One must understand that no one is against the policy of the government’s move to target black money. But black money is not present in hard cash and that too it will be a very small amount. Those who make black money know how to safeguard their wealth.
The only way to resolve the crisis is to allow money transactions. Old money needs to be deposited, and this token system cannot work. You cannot have a cashless economy in such a short period. Even in evolved economies like those of Singapore or Germany transactions happen in cash.
There was an incident in Kasargode of some youth getting radicalised and heading to join the Islamic state? How serious is the problem and what is your government doing about it?
Yes, growth of radicalisation is an increasing problem here. There is a lot of international influence on our youth. They go out to work and get radicalised by people who are out there to strengthen the ISIS . Normally innocent people are approached. They have huge faith in religion, and obey their religious texts, they are the ones who are misguided by wrong interpretations of the texts. Misunderstandings are created, and our children get lured in. We have tried to create systems for mobile tracking. Some boys are going through Afghanistan.
NIA is looking into these cases. We have taken a very serious view on such activities as it is a major threat to peace. We need to fight such influences and maintain the secular status of this state. Kerala is an exemplary state where plurality is respected. Everyone is allowed to believe and practice a religion of their choice. We need to protect the state from such influences.