On Monday, a late night press release from the Reserve Bank of India (RBI) took everyone by surprise. The release read thus: “As it is impeding active circulation of currency notes, it has been decided, on careful consideration, to allow withdrawals of deposits made in current legal tender notes on or after November 29, 2016 beyond the current limits; preferably, available higher denominations bank notes of Rs 2000 and Rs 500 are to be issued for such withdrawals”. To put it in simple words, if you deposit money in ‘acceptable’ currency denominations, you can withdraw beyond the current weekly withdrawal limit of Rs 24,000.
Now, what are the legal tenders currently?
Going by the 8 November televised speech of Prime Minister Narendra Modi, old notes of Rs 500, Rs 1,000 notes ceased to be legal tender from midnight. “To break the grip of corruption and black money, we have decided that the 500 rupee and 1,000 rupee currency notes presently in use will no longer be legal tender from midnight tonight that is 8th November 2016,” the PM said announcing one of the biggest demonetisation exercises in the country since the 1978 crackdown by Morarji Desai government.
But, the Rs 500, Rs 1,000 notes are banned only from transactions but are still ‘legal’ enough to be accepted at bank counters in the form of deposits till 30 December. The question is, Will such deposits too qualify for higher withdrawal limits or does the RBI notification refer to only deposits made in currency denominations that are in use (denominations of Rs 100 and below and new Rs 200, Rs 500 currency notes). There needs to be clarity on this aspect. Reason: If the latter is the case, the RBI is treating customers differently based on the type of notes they deposit, even though both set carries the same promise to the bearer as offered by the constitution. One customer who deposits his old currencies faces restrictions on withdrawal and the other with new currency notes gets unlimited withdrawal facility. Is that the case here? An email sent to the RBI spokesperson seeking clarity on the press release remained unanswered at the time of writing this piece.
There are two logical questions that arise:
First, at a time when currency in existing lower denominations (Rs 100, Rs 50 and Rs 10) is a luxury and the new ones (Rs 2,000, Rs 500 new notes) a rarity, why would someone deposit cash in these denominations in a bank. Those who have the first lot will preserve it for use and the second lot — who acquired them after standing for hours in long queues will be very cautious with it. Even otherwise, there are withdrawal restrictions on new currency from ATMs and bank branches. There are still many ATMs even today that have shut shop. Someone should have to be out of their minds to deposit “hard earned” money back to the bank in these times. Even those who get salary in cash (mostly low-income workers or small traders) would rather keep the cash in hand than deposit it it in the current scenario.
Second, at a time when bank branches are struggling and ATMs are gasping for cash despite the restricted withdrawals since 8 November, how can the RBI expect banks to offer unlimited withdrawal (which is what the line beyond the current limits; preferably, available higher denominations bank notes of Rs 2,000 and Rs 500) suggests. An email sent to the RBI spokesperson seeking clarity on the press release remained unanswered at the time of writing.
So far, given the withdrawal restrictions, only a fourth of the money deposited in bank branches have gone out of banks as withdrawals. Since 10 November up to 27 November, 2016 banks have received deposits of Rs 8,11,033 crore, while exchanges amounted to Rs 33,948 crore, taking the total figure to around Rs 8.4 lakh crore. As against this, the amount withdrawn by the public is Rs 2,16,617 crore from their accounts either over the counter or through ATMs.
PM Modi and economic affairs secretary, Shaktikanta Das have been dominating the demonetization episode from the beginning, not RBI governor Urjit Patel. Theoretically, the central bank is the authority on currency management and hence the governor should have played an active role by taking the public into confidence and push ahead the demonetization exercise. This is despite the fact that demonetization was primarily a political decision, not an RBI job. But, it would have been far better if the execution of the plan was effectively communicated to the public by the central bank governor, rather than a government bureaucrat. But, Patel has been behind the scenes from the beginning.
Also, there has been a serious disconnect between the RBI and the government on the implementation of demonetisation. Frequent changes in rules and broken promises have become the norm since the 8 November announcement that points to absence of coordination. In a 11 November press release, the RBI had said, “The facility for exchanging the withdrawn denominations of Rs 500 and Rs 1,000 is available for nearly 50 days. The Reserve Bank appeals to members of public to be patient and urges them to exchange their old notes at their convenience, any time before December 30, 2016.” This promise of the central bank to the public to give time till 30 December was broken when the Finance Ministry said on 24 November that beginning midnight, the exchange of old Rs 500, Rs 1,000 currency notes at bank counters would be stopped.
The Opposition parties have criticized Urjit Patel for compromising the central bank’s autonomy for his silence on the cash-crisis for over two weeks. Since then Patel has spoken to a few media houses but except for his assurances that the cash situation is under control (which is not reflected on the ground though), the central bank governor hasn’t addressed the media to offer more clarity to the public on the actual liquidity position of the banking system and how soon will the currency-crunch last.
The ball is in Patel’s court now. The governor would do well coming out of the shadows of the finance ministry and be his own man to address the public. Else, the demonetization episode will also be remembered as an event when RBI, an institution of impeccable record, compromised its functional autonomy.
First Published On : Nov 29, 2016 13:24 IST
Across the country, ATMs are dead and the lines outside banks are killing. In a few cases, literally and unfortunately so.
An entire population of 1.25 billion is living in misery, craving something they already have: A strange contradiction of shortage in abundance.
People can’t bank the cash in their hand, nor lay their hands on the cash in their bank. As yesteryear screen villain Ajit famously never said, “It’s like living in liquid oxygen… The liquid is choking them and oxygen is not allowing them to choke.”
So, there’s only one question to which the nation really wants the answer: Did Prime Minister Narendra Modi send a country into war against black money without planning?
Also, did he push his troops to the front lines high on emotion and low on ammunition? The scale of the crisis since 11 November when the banks opened for transactions after two shut days suggests so. National Opposition parties and those opposed to Modi’s sudden crackdown are sure this was a Quixotic idea of a destiny-seeking prime minister in a tearing hurry. Even those who are willing to see this as part of their national duty are at a loss to explain the chaos and hardship unleashed by the cash purge.
The government, on the other hand, insists that if it had planned it on the lines the Opposition parties are suggesting — recalibrating the ATMs before announcing the note ban, this massive operation would have delivered a still-born. Any plan to recalibrate ATMs would have lifted the veil of secrecy and black money would have either changed colour or form. There was, the government says, just no other way to do this other than to dive head first into the deep waters of currency replacement with a hope (that people would understand and endure) and a prayer (that it passes off without event).
The Opposition parties are not wrong — this could have been planned better and the government is not giving us all the facts. The truth is the government did have a plan. Not for recalibration — for which it has come under severe attack — but for the preemptive calibration of ATMs. If this plan had run its course, it could have considerably smoothened the currency exchange at ATMs. But the plan ground to a halt even before it took off. But more on that later.
Buried under 44 other notifications of the Reserve Bank of India (RBI) in this month, is the notification of 2 November (see below) that is headlined ‘Dispensation of Rs 100 denomination banknotes through exclusive ATMs’.
The contents of the notification were even more noteworthy, in retrospect of course. Under the cover of a ‘pilot’ project, the RBI asked banks to calibrate 10 pe cent of all ATMs in the country to dispense only Rs 100 notes. To further throw prying eyes off the trail of the brewing demonetisation plan, the RBI slipped this big ticket reform under its pet Clean Notes Policy, running since 2013.
Here’s the operative part of the notification signed by P Vijaya Kumar, chief general manager:
“A review of steps taken by banks for installing ATMs dispensing lower denomination banknotes was conducted and found that very few banks had taken initiatives in setting up ATMs dispensing lower denomination notes including Rs 100 denomination banknotes.
“In keeping with the objectives of Clean Note Policy and to ensure that genuine requirement of members of public for Rs 100 denomination banknotes are met, the banks should increase dispensation of Rs 100 banknotes through ATMs which are widely used for distribution of banknotes for retail use.
“With a view to encourage the banks in that direction, it has been decided to conduct a pilot project wherein 10 percent of the ATMs in the country will be calibrated to dispense Rs 100 banknotes exclusively. You are, therefore, advised to configure/calibrate 10 percent of your ATMs to facilitate this arrangement.”
See the notification below:
There are 1,03,282 on-site and 98,579 off-site ATMs in the country. This brings the total to 2,01,861 ATMs in all (as per the RBI’s bank-wise ATM statistics as of July 2016). That means by 17 November, when calibration will have been completed, the government had planned for around 20,000 ATMs to dispense only Rs 100 notes. This would have considerably eased the hardship of citizens who are left stranded with notes they cannot use.
A little detour to understand the difference between calibration and recalibration is necessary here:
Every ATM has three cartridges — also called bins — to keep cash, with one each for notes of the denominations of Rs 100, Rs 500 and Rs 1,000. To ensure that the ATM dispenses notes of only Rs 100, the cartridges carrying the other two denominations would need to be removed and replaced with cartridges of Rs 100 denomination. This change would not have raised any suspicions because Rs 100 notes were already in use. The banks would just need to order more cartridges of Rs 100 denomination.
But distributing the new Rs 500 and Rs 2,000 notes from ATMs would have required changing the cartridges, or recalibrating them as per the size and other parameters of the new notes. Recalibration of nearly 1,80,000 ATMs across the country would certainly have had tongues wagging about the impending currency replacement. So, recalibration, it seems, was not part of the plan and Finance Minister Arun Jaitley spoke the truth.
Two things are obvious from a post-facto reading of this (then) seemingly innocuous notification.
First, the government and the RBI had anticipated that after removing the larger Rs 500 and Rs 1,000 denominations, there would be a mad rush for denomination of Rs 100 for retail use. And they had rolled out what now seems like a graded plan to meet the challenge of the small notes.
Second, the ATMs were supposed to have been ready by 17 November to dispense only Rs 100 notes. A day after that deadline has passed, it is unclear how many of the 20,000 ATMs are fully Rs 100-note-ready. Chances are very few ATMs are, because at 8 pm on 8 November, this plan was blown off the tracks by the prime minister’s sudden announcement of demonetisation.
The notification was issued on Wednesday, 2 November and the prime minister went live on Tuesday, 8 November. That’s a little over three working days between the two dates. It’s hardly likely that the banks could have done much more than just crank up their systems. And after that, they have been left to deal with the deluge.
That raises the bigger question: If the calibration of ATMs was scheduled between 2 November and 17 November, why was the demonetisation bomb detonated midway knowing fully well that banks were still not ready? It is very unlikely that the two moves were disconnected from each other. The RBI could not have been on a Clean Note Policy binge six days prior to the entire banking system of the country being shaken from its roots. Particularly when the new notes that have now been released bear the signature of Urijit Patel.
The RBI’s notification does indicate that the government was working to a plan and a schedule. It suggests that the next big move on demonetisation should have been made after 17 November, although it is impossible to know how soon or how much later. But plans had to be abandoned. What was the provocation? Did the government suspect that the plan was leaked? Images of the Rs 2,000 note were, after all, floating on social media very early this month.
Unless the government is forthcoming with answers, we will have keep wondering if on 8 November, Modi was announcing the demonetisation plan or delivering it prematurely.
First Published On : Nov 18, 2016 13:38 IST
<!– /11440465/Dna_Article_Middle_300x250_BTF –>Ending two months of intense speculation, the Union government on Saturday appointed Urijit Patel as the 24th governor of Reserve Bank of India (RBI) for a period of three years. Patel, seen as a close aide of outgoing governor Raghuram Rajan and deputy governor in charge of monetary policy, will assume office on September 5, a day after Rajan’s term ends. He will be one among the few governors – after Manmohan Singh and Raghuram Rajan – to be appointed to the top post from outside the IAS circle.How did the scales tilt in favour of Urijit Patel when there were equally qualified experts like Arvind Subramanian, chief economic advisor, or Shantikanta Das, economic affairs secretary? Was he handpicked by Prime Minister Narendra Modi himself? Of course, opinion among economists, bankers and other stake-holders are divided on these counts, though most experts opine that probably the government wanted a continuity in the monetary policies and didn’t want any disruptions by bringing in a new candidate.The challenges before the new governor, however, would be to continuing to keep his grip on inflation, helping banks in strengthening their balance sheets and bringing in regulations that will ensure the stability of the financial system. Many believe that 53-year-old Patel’s prime focus will be to keep the galloping inflation under control though a granular surveillance on the interest rates. Urijit Patel, deputy governor since January 2013, has been a key figure in framing the monetary-policy framework that set food price inflation as the target for tackling inflation rather than focus on whole sale price inflation, which gave more weightage to industrial production. Arundhati Bhattacharya, chairman, SBI said, “Dr. Patel has been at the helm of instiutionalising the inflation targeting regime in the monetary policy framework. His appointment signals continuity of policy intent both on the part of RBI and the government.”The six-member rate setting committee will be set up shortly after the government appoints its three members. In the new role, Urijit Patel will have the flexibility to implement the policies on inflation and interest rates that he helped to formulate. And he takes over at a time when retail inflation and the whole sale inflation have both overshot expectations at 6.07% and 3.55% respectively.Ashutosh Khajuria, executive director, Federal bank said, “Patel is seen as Rajan’s lieutenant and the government wants to see continuity. It was his paper on monetary policy recommendations that set CPI as inflation target and the government has notified a 4% medium-term inflation target (with tolerance levels plus or minus 2%) has now become a legislation endorsed by the parliament. So his credentials as a economic policy expert is impeccable.” Chanda Kochhar, MD and CEO, ICICI Bank said, “His appointment would ensure a smooth transition and continuity in monetary policy, as India puts in place major structural reforms to transition to a higher growth path.”Patel, who completed his graduation programme from the London school of economics, has an MPhil from Oxford University and a doctorate in Economics from Yale university (1990). His previous assignment included terms with the International Monetary Fund (IMF), the Brookings Institution at Washington and the Massachusetts-based Boston Consulting Group and Reliance Industries and non-executive director of the multi-commodity Exchange of India Ltd.Patel will contribute to India’s growth story: JaitleyFinance minister Arun Jaitley exuded confidence that Urjit Patel will contribute to India’s economic development as the next Reserve Bank governor. “I’m sure he will successfully lead the Reserve Bank & contribute to India’s economic development,” Jaitley tweeted congratulating Patel.It’ll be idiotic to attack Patel: Subramanian SwamyUrjit Patel’s appointment appeared to have support of BJP MP Subramanian Swamy who had launched a series of attacks against the outgoing governor Raghuram Rajan. In a string of retweets and replies to his Twitter followers, Swamy said it will be utter “idiotic” to think he will attack Patel because he was born in Kenya.When one of his followers criticised Patel for being a Kenyan national, Swamy replied: “He is not a Kenyan citizen, but was. R3 was born Indian and chose to continue his US green card even though in India from 2007.” R3 is the acronym he uses for referring to Raghuram Rajan.
New Delhi: Urjit Patel’s appointment as new RBI governor appeared to have support of BJP MP Subramanian Swamy who had launched a series of attacks against the outgoing Governor Raghuram Rajan.
In a string of retweets and replies to his Twitter followers, Swamy said it will be utter “idiotic” to think he will attack Patel because he was born in Kenya.
Swamy, who has been extremely critical of Rajan’s policy of not lowering interest rate to check inflation, hoped that Patel will not be as “hawkish”.
When one of his followers criticised Patel for being a Kenyan national, Swamy replied: “He is not a Kenyan citizen, but was. R3 was born Indian and chose to continue his US green card even though in India from 2007.”
R3 is the acronym he uses for referring to Raghuram Rajan whom he had on several occasions attacked for keeping interest rate high and hurting growth.
When someone else said if Patel will be as hawkish as Rajan, Swamy replied: “Don’t be an idiot like presstitudes.”
His tweets led to his followers proclaiming that he was backing Patel’s appointment.
Swamy even retweeted a follower’s comment: “Looks like @Swamy39 approves Urijit Patel’s appointment.”
When a twitterati posted, “I am so dead sure that Swamy is not happy with this appointment”, the BJP MP shot back, saying “rubbish”.
Swamy also retweeted a follower’s tweet that said: “Bye Raghuram Rajan. Pick another hobby. Thanks @Swamy39. Welcome @UrjitPatel_ #TransformingIndia #RBI #AchheDin.”
Swamy had earlier alleged Rajan is “not appropriate for the country” and alleged that he has “hiked interest rates in the garb of controlling inflation which has damaged the country”.
Springing a surprise, Rajan in a letter to RBI staff in June announced that he would return to academia and not seek a second term.
After assuming charge as RBI governor in September 2013, Rajan had gradually raised the short-term lending rate from 7.25 per cent to 8 per cent and had retained the high rates throughout 2014.
He kept the rates high, citing inflationary concerns despite intense pressure from the finance ministry and the industry for softening them with a view to boosting growth.
The governor started the process of lowering the rate in January 2015 and since then, it has come down by 1.50 per cent to 6.50 per cent.