Six days after Rs 500 and Rs 1,000 notes were demonetised, the RBI disallowed district cooperative banks from accepting or exchanging the withdrawn currency. With the RBI also refusing to accept notes already deposited during those six days, amounting to Rs 2,000 crore, cooperative banks went through a year of litigation and stalled operations, with normalcy still to return.

Earlier this year, the Supreme Court allowed the old notes to be accepted, after verification through NABARD that started in July.

“… In this period, the impact on DCCBs was severe in states such as Kerala and Maharashtra where the cooperative banking network is extensive,” said Prof R Ramakumar, dean of School of Development Studies at TISS. DCCBs were stuck with devalued notes they had been allowed to accept during November 9-14, 2016, but also incurred losses on account of interest on this. By most estimates, that interest burden is nearly Rs 1,000 crore in Maharashtra alone.That urban cooperative banks were allowed to accept devalued notes while the DCCBs were not is seen as discrimination. “Political intentions are behind this move to dismantle the DCCB network in the state,” said Vishwas Utagi, vice president, All India Bank Employees Association. The network is controlled largely by the Congress and NCP.

Narendra Darade, chairman of the Nashik DCCB, said: “With no business and poor financial health it is difficult for us to keep the bank afloat.” Earlier this year, Darade had threatened to quit after the bank was stuck with Rs 342 crore in demonetised notes.

Meanwhile, with talk of an impending farm loan waiver, thousands of farmers have skipped paying instalments, another blow to the DCCBs. Some of these have now reported recovery rates of less than 5% on crop loans.

The DCCBs suffered losses in other forms too. The Solapur DCCB told Bombay High Court that the bank suffered heavy losses on commission it would have got on state electricity board bills paid through the bank. Vijay Ghonse Patil, managing director of the Osmanabad DCCB, estimated their bank could have seen deposits of Rs 50 crore but “people diverted their money to other banks”.

In June, the RBI —following an SC ruling — agreed to exchange old notes DCCBs had accepted during November 10-14, 2016, but not those deposited before November 10. The cash idling in the state’s DCCBs, estimated to be about Rs 100-150 crore, is incidentally part of the 1% devalued notes that have not yet come back into the system.

A year later, a direct fallout is in the disbursement of crop loans. This kharif season, disbursal is only 63% of targets; in the 2016 season, the DCCBs had disbursed 97%.

The government claims the ongoing loan waiver might help banks overcome losses, but B Subrahmanyam, managing director of National Federation of State Cooperative Banks, noted, “Neither the banks nor the government has any clear figure about the waiver.”