By TN Ashok
The expected did not happen. RBI Governor Urjit Patel steered clear of dropping the lending rate which could have rebooted the economy which had been hit by cash crunch piling on top of an already sluggish industrial and manufacturing activity. The RBI governor might have had strong reasons not to drop the lending rate at this hour as the situation was still to settle down. This was despite the fact that Finance Minister Arun Jaitley raised the possibility of lending rates going down as a consequence of banks getting flushed with funds.
The RBI feels it would take about another three to four months for the cash crunch to ease , the time required by the state owned printing presses to put adequate stock of the new notes of Rs 2,000 and Rs 500 into circulation to compensate for the money sucked out since demonetisation. Former Finance Minister P Chidambaram has already stated that it would take the government seven months ( May 2017) to put into circulation the much needed daily circulation of Rs 2100 crore immediately, as printing presses have the capacity to print only Rs 300 crore a month.
A total of Rs 23 billion notes were sucked out of circulation – 17 billion of Rs 500 notes and 6 billion of Rs 1,000. Government sought to replace the 6 billion of Rs 1000 by 3 billion of Rs 2000 notes. Rs 500 notes are taking time to come into circulation to make up the loss. So until seven months small businesses are going to be hit adversely as they are essentially cash based. The rural economy will continue to be disrupted. ATM lines are not going to disappear for another seven months. Bank counters are going to struggle to meet the demand of depositors.
While there are genuine reasons for the cash crunch, there appears to be something strange in the manner in which the cash crunch has been handled by the banks. There is a strong suspicion that RBI officials have favoured the private sector banks against public sector banks while distributing the new currencies. Sample this. Even after one month of demonetisation, 70% of the 2.20,000 ATMs are not working to their capacity. Though government has allowed withdrawal of Rs 24,000 per week, many Public Sector Banks allow only withdrawal of Rs 5,000 to Rs 10,000. This is due to alleged shortage of currencies. Some public sector bank branches have been forced to give cash on alternate days.
On the contrary, private sector banks such as ICICI, HDFC, and Axis Bank have reportedly received adequate stock of currencies to hand out to their depositors. Banking industry sources suspect some by RBI officials have bungled the distribution of currencies of the newly printed ones.
These sources point out that in Tamil Nadu, where cash crunch seems more severe than in other states, of the 9000 branches in public sector and 900 branches in private sector, the three private sector banks ICICI ( 402 branches), Axis (200 branches) and HDFC (270 branches) received Rs 6100 crore of new currencies since demonetisation on November 08 this year. Public sector banks having over 9000 branches with a huge customer base was given only Rs 7800 crore of the new currencies. In terms of proportion, the PSU banks got only Rs 0.85 crore per branch as against Rs 7 crore per branch of the said three private banks, alleges a leading NGO from Tamil Nadu.
Also, there has been a very strange phenomenon in the south, particularly Karnataka. While law abiding tax paying citizens have struggled to exchange say Rs 5000 of old notes, black money holders and tax evaders have successfully been able to convert their treasure trove of black money into the new currencies. Media has reported several seizures of vast amounts of money stacked in terms of Rs 2000 notes just printed. The highest seizure being about Rs 7 crore from an IT professional in Bengaluru. How did this happen?
It appears the NGO alleges that tax evaders have been able to pull this off with the connivance of some senior bank officials particularly in the private sector. The CBI has been able to nab some officials across the country, but it’s suspected that there are lots of such officials who still need to be nabbed. The All India bank Employees Association (AIBEA) and the All India Bank Officers Confederation (AIBOC) has condemned this trend and demanded transparency in the mode of distribution of currencies to both private and PSU banks. They have hit out at the alleged discrimination shown by RBI towards PSU banks. The NGO has demanded a CBI enquiry into the currency distribution.
The government is puzzled about the possibility of closing the year, December 30, the dead line for receiving demonetised notes, with a whopping inflow of Rs 15 lakh crore. Currency that was said to be in circulation was Rs 14 lakhs crore and government estimated that some Rs 3 to Rs 4 lakhs was black money in circulation and about 75% of this would come back. But more than 100% has come back into the banking system. Has all the black money been converted into white then and if so how?
To this there seems to be an interesting point of view being offered by a former senior executive of a public sector bank. K Srinivasan of Prime Point Foundation, an NGO, says that it’s quite possible that only Rs 7 to Rs eight lakh crore of currency has only come into the system and not Rs 12 to Rs 13 lakh crore as claimed by banking circles. Here’s how RBI has announced that 11.5 lakh crore of demonetised currencies have returned to system. But India’s largest bank SBI says the figure may be high because of double-counting of deposits, especially of interbank deposits and of new and valid currency notes together with withdrawn currency.SBI normally circulates its collection data on a daily basis but stopped the same as currency numbers coming in were not presenting the right picture. Because they included interbank deposits and deposits of legal tender! The net deposits mobilised by the bank since November 10 is understood to have touched Rs 3.5 lakh crore.
“We are not releasing our numbers because we believe that there is a possibility of double-counting. Post offices and cooperative banks have accounts with us and we also started receiving new notes as deposits,” Arundhati Bhattacharya, chairman, SBI said. The research wing of SBI claims there is a possibility of double-counting of 10-15% in bank deposits.
When RBI held its monetary policy press conference, its deputy governor R Gandhi said that the total money pumped into banks has crossed Rs 11.5 lakh crore. Speculation was rife that most of the Rs 14.95 lakh crore of withdrawn high-denomination bank notes would return to banks in terms of deposits. RBI had already supplied bank-notes of various denominations worth Rs 3.81 lakh crore and was continuing to pump in currency on a daily basis. RBI had pumped in Rs 85,000 crore worth notes of Rs 100, Rs 9,000 crore worth notes of Rs 50 and Rs 3,100 crore worth Rs 10 notes since demonetisation. This is more than what the Reserve Bank had supplied to the public in the whole of last three years.
Ultimately government may end up with about Rs 11 to 12 crore of currency in their chests including demonetised notes. The final tally of inflow of currency will become clear on December 30 when RBI announces the figures. Until then let’s wait. There is no option but to follow the advice of the FM and switch as much as possible to digital transactions through cheques, e wallets, debit and credit cards as there is a concession attached to it. In India the share of digital transactions to cash is just about 2% whereas its as high as 62% in Singapore, and over 45% in Europe and USA.
(The writer is a Corporate Consultant, Resident Editor and Writer of Economic Affairs).