Demonetisation of high denomination notes – Further way ahead

Though everyone except the affected parties welcome the recent demonetization of high denomination notes, the criticism made with regard to several faults and unforgivable delays in its implementation cannot be brushed aside. As of Nov 27, only one third of the 205,000 ATMs have started dispensing new notes and that too, only Rs.2000 and Rs.500 notes are available in the ATMs. The functional ATMs also quickly run out of cash and many people waiting in the long queue are disappointed and had to return home empty handed. At the bank branches also, restrictions and limits on the cash withdrawals continue. New 100 Rupee notes have not yet reached the banks and the ATMs till now. Common men continue to suffer even after 20 days. Illiterates and people living in the rural areas are the worst affected. All the opposition parties exploit the situation so as to defame the government and to attack Narendra Modi personally. Alright, what is to be done now?

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1. Make all the ATMs fully functional before 1st December, 2016

RBI must ensure that all the ATMs in the country are suitably recalibrated and made fully functional by 1st December, 2016. Each ATM must dispense all the three denominations of 2000, 500 and 100. If necessary, a provision is to be made now itself, to dispense 1000 Rupee notes also, if and when they are redesigned, printed and put into circulation by the RBI in future.

2. Stop Exchange of old notes from December 1, 2016

Banks must be advised to stop exchange of old invalid notes with effect from 1st December, 2016. However, those who want to exchange their old notes must be permitted to deposit such notes for the credit of their bank account till 31st December, 2016. Those who do not have any bank account as of now may be allowed to open a new account with a minimum balance of Rs.50. Similarly, the PMJDY account holders must be persuaded to keep a minimum balance of Rs.50 in their account always to enjoy the benefits attached to those accounts.

3. Fix a ceiling on the amount of old notes that can be deposited per day

By this month end, 3 weeks would have elapsed since the demonetization was enforced by the government. Common people would have got most of their demonetized notes exchanged for good notes or deposited them in their account by this time. Therefore, those who continue to hold such notes must be persuaded to directly approach branches of RBI or the nearest SBI branch for exchanging their old notes after 30th November, 2016. Moreover, a limit of Rs.2,000 per person per day must be imposed for exchange and the overall limit per person shall be Rs.10,000. A person cannot exchange his old notes after this limit is reached. Afterwards, the only option before him is to deposit such notes into his account. If he doesn’t have a bank account, he must open a new bank account. As was announced already, there will be no restriction/ceiling whatsoever to deposit the old notes into one’s own account and the deadline for this purpose may be extended up to 31st March, 2017, if deemed necessary by the government.

4. Introduce fresh curbs on cash withdrawals

There shall be curbs on withdrawal of cash deposited after 8th November, 2016. While the limits on cash withdrawals may be relaxed in a phased manner as far as the pre 09-11-2016 balance is concerned, there must be curbs imposed on the cash deposited into the account from 09-11-2016 onwards.

My suggestions in this respect are:

• (a) More than Rs.10,000 cannot be withdrawn from one bank account each day.

• (b) The weekly limit is Rs.50,000 and the monthly limit is Rs.100,000.

• (c) All the bank accounts of a person must be considered as one account, regardless of the multiple customer IDs one person might have in a bank.

• (d) In case of an account in the joint names of more than one individual, each person is supposed to have equal right to the balance outstanding in the account (half, one third etc.).

• (e) Branch Managers must allow opening of new accounts in joint names very selectively during the period of transition.

• (f) Special consideration must be given to those who want to withdraw the entire balance in their running account (CD/SB) or Term Deposits outstanding as on 08-11-2016. While allowing withdrawals in such cases, the cash withdrawn so far after 08-11-2016 must also be taken into account.

5. Subject all those accounts in which cash deposits during the past 20 days is abnormal

Scrutinize all those accounts in which cash deposits during the past 20 days is quite abnormal. For this purpose, the cash transactions during the past 2 years and the credit summation for the past 6 months may be analyzed. This scrutiny is needed, only when a person comes for a cash withdrawal of Rs.5,000 or above.

If the total amount of cash deposited in any of those accounts exceed Rs.50,000 during the past 20 days or the total cash deposits made during the past 6 months, such accounts are to be subjected to rigourous scrutiny. If necessary, the account holders must be called upon to offer explanation. If their explanation is not satisfactory and convincing, matter may be reported to Income Tax Department and Financial Intelligence Unit (FIU), New Delhi. For this, the software in the banks needs suitable modification to track such cash transactions. If a single cash transaction for Rs.1 lakh and above in which the demonetized notes have been used is also liable for deeper scrutiny.

It has come to the banks’ notice that many PMJDY accounts and dormant/inoperative accounts have been used as a conduit pipe to convert black money into white.

6. No restrictions placed on transfer entries

• (a) There is no restriction on the amount to be transferred from one account to another within the same branch or between two branches of the same bank or between two banks.

• (b) Similarly, there is no restriction on the amount of cheques, DDs or Pay Orders issued, by debiting the applicant’s account.

• (c) Transactions conducted through Internet Banking, Mobile Banking, intra-bank funds transfer through ATMs, online purchases made with Debit/Credit cards and purchases of goods and services with debit/credit cards at POS outlets will not be subjected to any restriction on account of demonetization. Nevertheless, the rules and conditions prevailing as on 8th November, 2016 before demonetization will continue to apply to them without any change.

7. What will be the position after 31st March, 2016?

Ban all cash transactions of Rs.50,000 and above, after 31st March, 2016. An announcement to this effect is to be made in the forthcoming annual budget to be presented in the Parliament on 1st February, 2017.

Banks shall not accept deposit of cash for Rs.50,000 and more and will not pay cash for the cheques/withdrawal forms for Rs.50,000 and more. This limit is per account, per person and per day.

To illustrate further –

• (a) One person cannot deposit/withdraw cash beyond this limit on any one day.

• (b) Similarly, one person cannot deposit into or withdraw from different accounts a sum of Rs.50,000 and above on the same day.

• (c) Cash deposit into and withdrawal from the same account by more than one person beyond this limit is also not possible.

Similarly, while issuing cheques payable to third parties, a depositor shall not issue any uncrossed cheque for Rs.20,000 and above. In future, all financial settlements for Rs.20,000 and above must take place through bank accounts, debit/credit cards and prepaid wallets only.

Conclusion

On the whole, demonetization has been welcomed by majority of the people, despite the temporary discomforts and sufferings undergone by them. People like me have been demanding demonetization of 1000 Rupee notes for quite some time. But, demonetization of both 1000 and 500 Rupee Notes simultaneously has taken away nearly 86% of value of the currency in circulation in stroke.

Lack of understanding and proper co-ordination between GOI, RBI, Banks, ATM manufacturers and Cash Replenishment Service Agencies have led to chaotic management of the post demonetization situation and the resultant dissatisfaction and curse of the masses. So, the government and RBI must learn suitable lessons from this episode and take adequate steps quickly and efficiently, at least after a giant step like this is taken in future.

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