MUMBAI: The I-T department is cautiously treading on a tricky political terrain: cooperative banks and credit societies.While scanning the numbers received from large banks, the tax office has spotted an unusual surge in deposits from state and district cooperative banks and societies into scheduled commercial banks where they have accounts.The department, according to a tax official, suspects that several banks and societies — which were disallowed from either exchanging or accepting the old 500/1,000 rupee notes as deposits — may have booked back-dated fixed deposits by either shutting down or manipulating their computer systems.Indeed, a week after the 8/11 announcement of demonetisation , four large banks — three public sector and one private lender — alerted the Reserve Bank of India about the sudden rise in the flow of deposits from cooperative banks located in and around eastern Maharashtra, a source in the banking industry told ET.“The department is expected to look at various cooperative banks and credit societies in Tamil Nadu, Karnataka and Maharashtra. But we will pursue this one at a time to avoid political repercussions… the links between politicians and district-level cooperative establishments are no secret,” said the tax official.The tax department has to move carefully as many small and genuine customers of cooperatives are having a tough time post demonetisation.These banks are unable to provide basic banking services that regular scheduled banks are offering. Many cooperative banks follow a loose know-your-customer procedure and have no regular reporting system of high-valued customer deposits to the I-T department.“If they collect undeclared cash from influential, politically-connected customers, large commercial banks have no choice but to accept the money when it is deposited in the accounts that cooperatives have with these large banks…,” said a banker.“Large amounts have been deposited in various names in the first week after demonetisation. Such parking of cash would have been tougher in regular scheduled banks. More importantly, it would have immediately alerted the tax authorities,” said the person. For taxmen, tracing the fund source of bulk deposits of cooperative banks to individual accounts and thereafter identifying the beneficial owner could be a painstaking job. It can be even frustrating if the official account holders in cooperatives are farmers who are spared of income tax.Registered cooperative credit societies maintain accounts with cooperative banks which in turn have accounts with scheduled commercial banks.According to three other bankers ET spoke to, sidestepping the system can be easier in many cooperative banks in the absence of a foolproof technology.Nationalised and private banks run on core banking solutions where all the workstations follow an ‘end of the day’ shutdown; if workstations in a particular branch is not shut down before the close of the day due to reasons such as slow internet connection or other disruptions, it triggers ‘force day end’ that shuts down the PC. (All the workstations of a bank have to be shut to enable the central server to take backup of the data generated during the day across branches.) But, this probably is not necessarily the case with all cooperative banks.In fact, even many of the 1,500-odd unscheduled urban cooperative banks which are allowed to exchange and accept deposits, do not have a robust interconnected system.Experts in banking technology said that tinkering with the system is easier in the absence of a core banking software that allows bank employees to view customer transaction from any location. But banks with no core banking system are exposed to sharp and irregular practices such as accepting loan payment beyond the stipulated 90 days, making book entry for the previous day, and accepting backdated deposits.“In the initial days (post November 8) we saw huge deposits from credit cooperative societies and district cooperative banks. This has tapered now,” said chief executive officer of a schedule cooperative bank which has smaller cooperative banks and societies as depositors. There are 370 district credit cooperative societies and one lakh credit cooperative societies — with one of the biggest located in the Amravati region of Maharashtra, having more than 300 branches with 5,000 employees.