Among various rules, revisions, reversals and modifications stipulated by the Reserve Bank of India (RBI) during the demonetization period, a major one was to impose a ban on exchange and deposit of old currencies at district cooperative banks across the country allegedly owing to reports of “large scale irregularities” committed by them in the exchange procedure.

On November 14, barely a week after the announcement of demonetization on November 8, the RBI had barred district cooperative banks from accepting or exchanging the old Rs 500 and Rs 1000 notes. The abrupt decision led to distress and panic among millions of farmers and the rural population whose only access to formalised banking continues to be through these banks, which have network in the rural parts of the country.

Now, it has emerged that the apex banking body did not have a single case or information related to “irregularities” against any district cooperative banks before stipulating such stringent measures on them.

In a reply to an application under Right to Information Act 2005, the banking regulator has stated it has no data or information available with regards to irregularities committed between November 8-December 10, 2016, in the District or State Cooperative Banks.

Interestingly, the regulator could not provide a single case against any district or state cooperative banks in its response, dated January 9. Regarding urban cooperative banks, the central bank’s information officer AG Ray stated that it would be provided by another department of the RBI.

This clearly indicates the banking regulator did not have any specific information against district cooperative banks to justify its conclusion that these banks were indulging in widespread irregularities and scams in the exchange of currencies following the decision of demonetization.

“The RTI response affirms the Narendra Modi-led BJP government had overturned its decision of allowing note exchange and handling of new currency in Cooperative Banks, within six days of demonetization, based on 'unsubstantiated' accusation of money laundering in these banks. This arbitrary decision affected crores of farmers and rural population,” says RTI Activist Anil Galgali, who sought the information from the RBI.

Galgali questions the presumptions hurled at cooperative banks with regards to underhand dealings in exchange of currency notes. “The RBI’s arbitrary decision dented our image to some extent besides creating panic and pain among farmers in those tough days. Many of our customers were forced to open accounts in public sector banks so as to deposit the old notes they usually keep at home for emergency purposes,” admits an official from Thane cooperative bank.

Rural economies in Punjab, Gujarat, Uttar Pradesh, Maharashtra, Kerala, Odisha and many other states are largely based on cooperative banks only. Farmers rely largely on these banks because of their rural penetration and easier loan disbursals. In Kerala, cooperative banks have a total business of more than Rs 1 lakh crore.

“While some cooperative banks are accused of irregularities and scams, a blanket ban (over old notes acceptance and exchange) on these banks merely on hearsay only highlights how clueless the banking regulator was in those 50 days,” said a Professor of economics at Mumbai University.