Will the RBI stand up and be counted?
The anger against bank officials is rising with every passing day. In many places nationwide, violence in bank premises and against bank officials are being reported. With angry crowds lashing out for not getting money in spite of standing in queues repeatedly. The impression now is that bank officials are crooks and are siphoning off new currency to their rich customers or laundering the black money of suspect individuals for a fee while the poor languish and die in lines across the country. This is a very dangerous trend that could not be farther from the truth. If public anger spills out of control and people start to take the law into their own hands putting the lives of bank officials at risk, bank employees will rise up as one across the country and go on strike. This could not only put PM Narendra Modi's precious demonetisation plan in jeopardy but also bring our entire economy to a grinding halt.
It is the bounden duty of the RBI to come out and truthfully with the amount of money dispatched to the banks so far, how much money a bank branch receives each day in new currency on average, and how much is kept in its head office. It should also state that this is not enough to meet current needs and beg for people's patience. For the benefit of rural populace, it should also be clarified that rural bank branches get half if not one-fourth the amount received by banks in the cities. Tier II and III cities also get much less than Tier I cities. For example, a branch of ICICI bank in New Delhi might get only Rs 5 lakh per day at best. A smaller bank may get Rs 2 lakh. At least fifty per cent of that may be put in ATMs. If the remaining amount has to be distributed among the people lined up outside, only between four to ten people could be given money daily if each person is allowed the maximum limit. In contrast, a bank in a faraway village may get only Rs one lakh daily, perhaps not even that, and it definitely may not receive money every day due to the logistics involved.
The RBI must explain why it is not able to provide enough currency to the banks. Due to the changeover involved in printing Rs 500 notes in the RBI presses, which were earlier printing Rs 2000 notes, RBI has had to shut its presses for 21 days or more for realignment so it is capable of printing the new Rs 500 notes. This has further reduced the supply of Rs 2000 notes while the supply of Rs 500 notes has not yet picked up concurrently. Unless the RBI clearly states that it is the fault of our government and of the RBI itself that it is unable to pour sufficient money into the banking system as printing of the new Rs 2000 note began only in October and the Rs 500 note only in November, and the banks cannot distribute the money they do not have, the people's misconceptions about the banks will keep growing. If the public loses faith in the banking system, people will rush to withdraw all their money from the banks the moment limits are relaxed and the government's ploy of recapitalising the banks with the public's money will have come a cropper.
The RBI must declare expressly to the public that our printing presses are gasping under the strain, as they are simply unable to print the staggering amount of Rs 15.4 lakh crore withdrawn from circulation, within a couple of months or more, as this money had been released and re-released into the economy over the last 15 years. Though the RBI has new, state-of-the-art printing presses which are capable of churning out money relatively faster, its experience and knowledge in the currency printing field is quite limited as it has got into this field only in the last few years and is still learning. Its largest printing facility at Bharatiya Reserve Bank Note Mudran Private Ltd. (BRBNMPL) in Mysuru, which printed Rs 2000 notes till recently, was set up with the De La Rue Giori, now KBA Giori, Switzerland, but since that company had been on a government blacklist until 2015, it may have been difficult for the RBI to take the help of its technicians on how to utilise the presses to maximum capacity.
In contrast, Security Printing and Minting Corporation of India Ltd (SPMCIL), has many years of experience in printing currency notes, but the machines printing Rs 500 notes are old and prone to frequent breakdowns so they are able to print much fewer notes at their presses than is needed. In addition, due to the strain they were put under in meeting targets, they were forced to do a rush job and therefore, printing errors developed in millions of Rs 500 notes. Though a few found their way into the system initially due to lack of proper checks and balances, many erroneous notes in later batches were discarded, curtailing supply further. The RBI must provide a clear timeline as to when the situation will normalise, when people can withdraw the full amount they are entitled to, and when the withdrawal limits will be relaxed. Honesty is often the best policy.
RBI must clearly inform the public that 99.9 per cent of our bank officials are honest and hard-working men and women, constrained to work under almost impossible circumstances, often late into the night, and they have no designs on the people's money, or the situation could soon spin out of control. Keeping cash at home is not a crime in itself. If people want to hoard cash in their homes because in spite of this not being a banana republic, people are afraid the government and the RBI may not provide them cash when they need it, then it is their business. If an individual is found with a few lakhs of rupees, it may not have been illegally obtained from bank officials. If he has several bank accounts in different banks, he could quite legitimately have withdrawn several lakhs of rupees as he has licence to withdraw Rs 24,000 from each of his savings accounts weekly, and Rs 50,000 from each current account per week, which could add up to a very large amount if he has multiple accounts. If the bank officials have used their prerogative in giving out the full limit to some valued customers while they give out much less than the stipulated amount to others due to paucity of cash, it is not a crime either. The banks are under great pressure due to the demonetisation drive. While they are doing their best to faithfully carry out the orders of the government, they must also take care of their high net worth customers or risk a significant sag in their bottom line as these customers could take their business elsewhere.
TV news channels are awash with reports of IT raids across the country with officers recovering crores of rupees in new notes. These news reports do not discriminate if the recoveries are in lakhs, crores, or thousands of rupees. They also keep showing the same reports over and over again which makes it seem as if money in the hundreds of crores is being recovered when the truth may be that new notes recovered till date is closer to a few crore rupees. These new notes could have been obtained through money traders and not bank officials, and the money traders could have obtained the notes for a fee from the millions of small withdrawals made by ordinary people and also from the cash exchange of Rs 4500 and later Rs 2000 across the counters which the government legally allowed all citizens till November 24.
No figure was given by the Economic Affairs Secretary Shaktikanta Das when he was asked in a press conference on November 15 on the total amount recovered through IT raids, and how much of it was in new notes and how much in old notes. One may not be surprised to learn that the sum of new money recovered across the entire country was mostly legitimate withdrawals from banks.
The RBI is also putting the banks under enormous pressure by sending a slew of directives every day on the do's and don't's of how the banks should conduct their business in doling out this money. Each individual must fill out several forms and hand over photocopies of ID proof and PAN card to the banks. The banks must also help uneducated customers and senior citizens to fill out forms and photocopy documents if needed. Additionally, it must be vigilant each time a withdrawal or deposit is made that it is not breaking any rules and fulfilling all the norms set out by the RBI. Therefore, it takes much longer to transact normal business at the bank, and hence the people in the queues outside get restless about what exactly is happening inside the banks. Many bank customers may be entering the banks for purposes other than depositing money or withdrawal, like opening their locker for example, and when these people are seen entering the bank ahead of the queue, people become suspicious. The huge amount of paperwork that the bank has to send the RBI daily and the attitude of some members of the public also forces the banks to shut their doors early and not answer questions from the public once their money runs out. It is a completely untenable situation for the banks created by the RBI and the government, yet they have been thrown to the wolves with IT officers and others descending on some banks every day during banking hours, and conducting its investigations throughout the day while people waiting outside are chased away or made to wait without explanation, further inflaming the public. These sort of investigations should be carried out after banking hours.
The RBI Governor has lost a lot of goodwill during this period by sacrificing his independence and professionalism in the name of being a faithful government servant. It has become party to casting aspersions on honest and hardworking Jan Dhan account holders, by claiming monumental amounts of suspicious money may have come into these accounts, though it has been discovered that only 40 Jan Dhan account holders have so far deposited sums of Rs 10 lakhs or above. It has decreed that Jan Dhan account holders cannot withdraw more than Rs 10,000 from their accounts monthly and only Rs 5,000 if they are not KYC compliant. Why did it not make fulfilling KYC norms compulsory for all Jan Dhan accounts since the scheme was started two years ago? Or was it being an enabler of the government which had wanted to show that it had been massively successful in opening hundreds of millions of Jan Dhan accounts, never mind if these accounts were ever operated or fulfilled all the requirements including KYC? How can demand for KYC retrospectively be applied? How can you say that these people cannot withdraw any money from their accounts if they have deposited more than Rs 2 lakh and do not have a PAN card? Why did you allow them to deposit this money in the first place? Why are you so patronising that you feel a Jan Dhan account holder is such a spendthrift that he cannot legitimately save more than Rs 2 lakh over many years, even if several of his family members are working? What if they work in an office and this Jan Dhan account is also their salary account where their wages are deposited each month? Why did the RBI not allow Jan Dhan account holders to be issued cheque books so they, too, could enjoy the same facilities as us and not have to queue for cash all day neglecting their jobs.
How can you put a limit of Rs 4000 on withdrawal from Jan Dhan accounts at a time, when the limit on regular accounts is Rs 24000? Don't poor people have a hard enough time standing in queues that they have to come to the bank thrice to withdraw their full quota of Rs 10000? Is that not just another cunning way of rationing money because you simply do not have enough?
Now RBI is allowing itself to be part of a similar campaign of suspicion conducted against banks by conducting frequent investigations, with even Prime Minister Narendra Modi jumping onto the bandwagon and speaking against corrupt bank officials in one of his recent speeches. It is simply not done to tar everyone with the same brush just because a few are at fault.
If suspicion must fall on anyone it should fall on the RBI first and foremost. What will you do with the 'black' or rather the undeclared money that does not return to the system on December 31. Will you meekly hand it over to the Government as dividend? Is it yours to bestow? In which column of your books will you list this amount, in assets or in liabilities? Is not every currency note that you have issued an IoU that you have to honour in perpetuity whenever the holder returns it to you to encash, or does your responsibility end on March 31.
Will you let the public know after December 31 how much was the actual sum that remained undeclared and did not return to the system or will you bow to government pressure which keeps insisting that you have done double counting as no way more than Rs 13 lakh crore could have returned to the banks already? Will you have to do some creative accounting, as already the claims of the total amount of demonetised notes previously in circulation have increased, from the Rs 14 lakh crore stated by the Finance Minister Arun Jaitley on November 9 to the Rs 15.4 lakh crore stated by Economic Affairs Secretary Shaktikanta Das on December 15. Anything to keep the government happy and for the RBI Governor to keep his job?
If the government asks you to distribute this money instead to the bank accounts of the poor, who will you choose? Will you choose the same Jan Dhan account holders who you are now implying are criminals who have laundered black money? How will you pay the poor who have no Jan Dhan accounts? How can you say with certainty that all poor people have only Jan Dhan accounts instead of other types of savings accounts? Or will you determine people are poor by putting money in all zero balance accounts? What if these accounts are never used? So you will reward a person who is a spendthrift and does not believe in saving money in banks, or keeping it under his mattress though you are so keen to get banks recapitalised, but you will punish a poor person who saves thousands or lakhs in their accounts by working hard and spending little. How will my maid convince you she is poor and you should put money in her account? Should I give her a salary certificate? And doesn't this money belong equally to all citizens? Again, is it your money to give?
Before you start rewarding the poor and punishing the rich, isn't it better you make a start by not keeping a hawk's eye on the small accounts of all the 'poor people' as you have threatened you will be doing and tagging all their regular bank transactions as having criminal intent?
If you are concerned about the poor, should you not have instructed banks not to tear up or reject some banknotes of poor depositors which tellers claimed were counterfeit though some counterfeits are actually extremely hard to determine, as the RBI itself has been found to have counterfeit notes in its vaults. Shouldn't the RBI have asked the banks to return all such suspect notes to it so it could examine them carefully and also calculate how much counterfeit money had returned to the system? Shouldn't it have educated the public on its rights in regard to such notes?
The RBI, which has been a willing partner in the government's sins of omission and commission during demonetisation, also bears a large part of the responsibility for the chaos caused by this exercise. Seeing its independence compromised and its inept fumblings and mumblings, I feel so ashamed of the craven attitude of our premier institutions, especially when I compare it to my wonderful experience with the Bank of England a few months back. I had held onto some fifty pound notes after my last visit to the UK several years back. This time when I was in London, I was informed at a hospital that they were no longer legal tender and could be exchanged only at the Bank of England's counter in Threadneedle Street. On entering this imposing building I was afraid I would be given a hard time on how notes discontinued in 2014 were still in my possession. But to my pleasant surprise, I was greeted by a ceremonially dressed but cheery guard at the regal entrance, who checked my pound notes and ushered me in within seconds, along with other hapless tourists, to a row of kindly tellers. After asking me in what denominations I would like my notes the cashier smilingly handed me five crisp fifty pound notes and I was then politely and swiftly ushered out within the space of a few minutes. It all happened so quickly I was barely able to absorb the grandeur and beauty of this majestic building. Now, that is what I call a civilised country.
The RBI, which is modelled on the Bank of England, would do well to read its mission statement before it commits any further illegalities in the name of good governance. It states, 'The Bank of England's mission is to promote the good of the people of the United Kingdom by maintaining monetary and financial stability.' Did the RBI Governor stand his ground and tell PM Narendra Modi that demonetisation could not be launched immediately as it may cause financial and monetary instability in the country, since there was simply not enough money available to replace even half of all the withdrawn currency, and this might require several months if not a year to print? Did he insist that at least the old Rs 500 note should be allowed to still exist for a while longer with the new version?
The BoE website further states, 'Genuine Bank of England banknotes retain their face value for all time, and can be exchanged at the bank of England in London. Banknotes of this type can be exchanged either by post or in person… Confidence in our currency is important for keeping the economy functioning, so we make sure the notes we produce are high quality, durable and resistant to counterfeiting… All withdrawn Bank of England banknotes remain payable at face value for all time. (This means the bank is not interested in the provenance of the notes, or the character or prosperity or lack thereof of the person they belong to).'
Did the RBI ever insist to the Prime Minister that our new notes would be equally vulnerable to counterfeiting as the demonetised notes as no new security features have been added. Did it tell the Finance Ministry that all steps had to be followed while checking new currency notes at the presses, as skipping even one vital step would make these notes vulnerable. Did it sternly rebuke the supervisors at its printing presses when they released Rs 2000 notes without letting the ink dry on them for 72 hours? When flawed Rs 500 notes were released, did it tell the government that the entire batch had to be immediately withheld and each note individually checked instead of allowing them to be released into the system so that public became suspicious and lost its faith in these notes.
Did it ever inform the government that it would not be able to hand over any money to the government that was not returned by black money hoarders to the system, but also by the poor and unbanked, the sick, the disabled, the mentally incapacitated, and the ignorant and uneducated in remote areas, as these notes would 'remain payable at face value for all time,' irrespective of its colour?
And in light of all the notes cut up by or discarded by our banking staff, or burnt or dumped in rivers after demonetisation was announced, this is what the Bank of England has to say, 'The Bank of England's Mutilated Note service exists to reimburse members of the public with the face value of any accidentally damaged, mutilated or contaminated Bank of England banknotes, providing there are sufficient fragments or remains. The Bank currently receives around 23,000 individual applications per year, totalling around £11 million. Despite the high volumes the majority of claims are assessed within a few days.'
The independence of the Bank of England is a treasured principle in the UK monetary policy and is enshrined through an act of Parliament. With the RBI, it seems to be in name only. All announcements and modifications to the demonetisation scheme were made by Shaktikanta Das, Economic Affairs Secretary, and not the RBI Governor. The government refused to heed the warnings of the previous RBI Governor on the ramifications of demonetisation on such a large scale. The new Governor, Urjit Patel, was barely consulted on the scheme as he had been in office for less than 2 months when demonetisation was launched. But it still does not abrogate his responsibility in ensuring that everything is done by the book and common people and banking staff are not further harassed. He should ensure genuine cases where people have not been able to return money by March 31, perhaps because they were ill or out of the country, requests for exchanging old notes are honoured. He should ensure that interest rates on the fixed deposits of widows, pensioners and the marginalised in our society remains intact. At the same time he must ensure that banks are not put out of business by having to pay high interest rates on the huge cash deposits they are saddled with.
Let us hope that valuable lessons are learnt through this exercise so that same mistakes are not repeated by adventurous governments in future, in collusion with an unprepared RBI.
(The views expressed are strictly personal.)