Bank News 29-11-2016

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Banking News: November 29, 2016
Here is an endeavour to bring you in one folder all banking related unedited
news/columns/articles/opinions/analysis etc appearing in major business dailies
The compiler assumes no responsibility for the authenticity and reliability of the
news. Readers are requested to go through the official instructions before acting
upon any news articles and views appearing herein.
Compiled by: Anup Sen

Salt Lake City, Kolkata 700 064
From E-Group, Banking-News
Irate customers vandalise SBI branch

over refusal to withdraw Rs 24,000 each
The India TV News

Published on November 28, 2016
Chennai, November 28: People who had queued up at SBI

branch on the campus of Manipur University in Imphal on
Monday went berserk when the bank refused to let them
withdraw Rs 24,000 each. Although police reinforcements
rushed to the bank, no arrest was made.
The State Bank of India manager, identified as Prasad, said the
trouble started when two customers demanded Rs 24,000 each
-- the maximum limit set by the government for a person to
withdraw
from
his
bank
account
every
week
after
demonetisation.
"They became angry when it was pointed out that senior bank
officials had declared that such big amounts could not be
withdrawn," he said. The customers then turned unruly and did
not allow bank work to continue, the officer said.
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Mutum Shyamo, an SBI customer, said people who had been

queuing up from early in the morning became furious when they
were informed they could take out only Rs 2,000 each from their
savings accounts. An elderly customer who did not want to be
identified by name said: "Two thousand rupees is chicken feed.
We have been wasting several days for this pittance."
Sensing the mood, the SBI said they could take out Rs 4,000
each. "But the bank will be closed once the cash runs out," one
officer told the crowd. On hearing this, the account holders
started vandalizing the office, the witnesses said. Riot police
rushed to the bank to bring the situation under control.
Though armed policemen have been deployed in all bank
branches, officials say it has become increasingly difficult to
maintain order as customers who are denied cash become
restive.
Demonetisation Update by RBI

as on November 27, 2016
The RBI Press Release

Demonetised Rs.500 & Rs.1,000 notes for Rs.8,44,982 crore

deposited. Notes exchanged over the counter is Rs.33,948 crore
(4%) and deposited in the accounts is Rs.8,11,033 crore (96%)
Mumbai, November 28: Consequent to the announcement of

withdrawal of legal tender status of banknotes of Rs. 500 and Rs.
1000 denominations from the midnight of November 8, 2016, the
Reserve Bank of India made arrangements for exchange and/or
deposit of such notes at the counters of the Reserve Bank and
commercial banks, Regional Rural banks and Urban Cooperative
Banks.
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Banks have since reported that such exchange/deposits effected

from November 10, 2016 upto November 27, 2016 amounted to Rs.
8,44,982 crore (exchange amounted to Rs. 33,948 crore and
deposits amounted to Rs. 8,11,033 crore).
They have also reported that the public have withdrawn, during this
period, Rs. 2,16,617 crore from their accounts either over the
counter or through ATMs.
SBI chief says hike in CRR due to

less demand, high inflow rate
The CNBC-TV18
Mumbai, November 28: The Reserve Bank of India (RBI) hiked the
cash reserve ratio (CRR), the percentage of cash deposits that
banks have to maintain with RBI to a maximum of 100 percent.
In the latest episode of Indianomics, SBI Chairman Arundhati

Bhattacharya, says that these are extraordinary times that need
extra ordinary measures.
She hopes that this is a temporary measure, till the time RBI makes
arrangements for market stabilisation bonds or some other means
for remunerating banks.
She further said that liquidity is still high in the system. Credit
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demand is very low.
She also said that rate of inflows is far more than the demand and
that is causing the requirement of reverse repo.
On the deposits that the banks have received post the roll-out of the
demonetisation scheme, she said around 10 percent to 15 percent
will remain in the system.
RBI to relax cash withdrawal limits on or after Tuesday
The CNBC-TV18
Mumbai, November 28: The Reserve Bank of India late Monday

issued a notification relaxing current cash withdrawal limits of legal
tender notes at banks and ATMs on or after November 29. New Rs
2,000 and Rs 500 will be issued for such withdrawals. The RBI,
however, didn't specify the revised cash withdrawal limit.
"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 2,000 and Rs 500 are to be issued
for such withdrawals," RBI said in a statement.
The notification is being viewed as a relief from the central bank

ahead of salaries that companies credit to employees.
Meanwhile, RBI said banks across the country have received Rs 8.45
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lakh crore from demonetisation during November 10 and November

27. Citizens withdrew Rs 2.17 lakh crore from accounts over the
counter or via ATMs during the period while amount exchanged from
old notes to legal tender is Rs 33,950 crore, RBI said. Amount
deposited in banks is Rs 8.11 lakh crore during demonetisation, it
added.
Banks reissuing soiled notes to beat cash crunch
Rutam Vora
The Business Line
Most banks hold soiled notes in their

lockers/chests for remitting to RBI
Ahmedabad, November 28: In order to tide over the currency

shortage at branch level in urban and rural pockets, public and
private sector banks have started issuing soiled but issuable legal
tender to their customers.
The shortage of currency notes mounted after the demonetisation of

Rs.500 and Rs.1,000 bills, which has compelled banks to put soiled
currency notes of Rs.50, Rs.20 and Rs.10 denomination back into
circulation.
According to sources, the stock of valid legal tender has hit a rock
bottom at most banks and currency chests. Several bank branches
and the currency chests store soiled notes to be remitted to the RBI.
But with the sudden announcement of demonetisation of 86 per
cent of the total notes in circulation, many of the banks, fearing
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severe shortage of notes, held back the soiled notes in their lockers.
The RBI normally makes pulp of these soiled notes, which can no
longer be circulated. But the shortage of the currency is such that
these banks have put these soiled notes back into circulation. They
are dangerous from the hygiene point of view. These are dirty and
fragile notes, which can't be used further, still we see them into
circulation, said a senior banker.
RBI definition
As per the RBIs definition, soiled notes are those which have
become dirty and slightly cut without its vital information such as
number, watermark and governor's signature being affected.
A general manager of a public sector bank said, There are issuable

and non-issuable soiled notes. So, even if it falls under the category
of soiled notes, they can be still issuable. With severe cash shortage,
several banks are using these notes to meet the immediate demand
for cash." According to banking experts, two types of notes usually
come into circulation.
First are the newly printed notes, the second are those which are
reissued for circulation by the RBI. The soiled notes are the third
category. These soiled notes are coming back into circulation. There
is no stock of new notes hence banks are now reissuing even the
non-issuable notes in certain areas, said CH Venkatachalam,
General Secretary, All-India Bank Employees' Association .
In July this year, the RBI had directed all banks to exchange a
maximum of 20 pieces of soiled notes with a limit up to Rs.5,000 per
day. This exchange, targeted to withdraw soiled notes from the
circulation, was allowed over the counter free of charge.
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To get back to normal after demonetisation,

India needs 1,200 crore new Rs 500 notes
The Credit Suisse

The Financial Express
Mumbai, November 28: Post demonetisation, logistics and printing

of new currency appears to be the key challenges for the RBI and
Government to restore business as usual in the economy. Of the Rs
14 lakh crore demonetised while Rs 6 lakh crore has been deposited
with banks, only Rs 1.5 lakh crore of the new currency has been
withdrawn/exchanged till date and a large share of this has been in
Rs 2,000 notes which are not ideal for transacting.
While as per reports, 150 crore Rs 2,000 notes have been printed,
lack of an adequate transactional currency is still continuing 15
days after demonetisation and it appears unlikely to resolve in the
next couple of weeks, with only Rs 2.2 lakh crore of residual
currency (other than Rs 500/1,000) in circulation.
To get back to normal transaction volumes we estimate up to 1,200

crore new Rs 500 may be needed. Industry estimates indicate that
until last week 40 crore of the Rs 500 notes were printed. While
total printing capacity is estimated at 10 crore notes per day, the
printing capacity of Rs 500 notes appears constrained at 4-5 crore
per day.
The Rs 2,000 note is not an ideal transactional currency. This note

being high value and with remaining currency <15% of the total
currency, it is unable to provide enough liquidity to transact.
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Kaushik Basu flays demonetisation, says it is likely to fail
The Nes-18 Online

While Kaushik Basu is supportive of the intent behind the policy,

that of dealing with the large black money economy in India, he said
the move was ham-fisted that will put only a temporary dent in
corruption and is likely to rock the entire economy.
New Delhi, November 28: Former chief economic adviser to the

government Kaushik Basu has criticised the Centres demonetisation
of Rs 500 and Rs 1000 currency notes, saying it was badly
implemented and likely to fail. Basu made the comments on Sunday
in an article in the New York Times.
He is currently the C. Marks Professor of International Studies and

Professor of Economics at Cornell University in the US. He served as
chief economic adviser to the Indian government from 2009 to 12
and was chief economist of the World Bank from 2012 to 16.
Demonetisation was ostensibly implemented to combat corruption,

terrorism financing and inflation. But it was poorly designed, with
scant attention paid to the laws of the market, and it is likely to fail.
So far its effects have been disastrous for the middle and lowermiddle classes, as well as the poor. And the worst may be yet to
come, Basu wrote.
He also criticised the poll conducted on Prime Minister Narendra

Modis App. While he is supportive of the intent behind the policy,
that of dealing with the large black money economy in India, he said
the move was ham-fisted that will put only a temporary dent in
corruption and is likely to rock the entire economy.
Demonetisation is mostly hurting people who arent its intended

targets. Because sellers of certain durables, such as jewellery and
property, often insist on cash payments, many individuals who have
no illegal money build up cash reserves over time. Relatively poor
women stash away cash beyond their husbands reach, as savings
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for the children or the household, he said.
He said that the policy was causing people to skimp on the daily
expenditure which will cause prices to fall. But this is not good news
as it will hurt farmers and small producers of goods. Further, he said
this will have a cascading impact on Indias economic growth which
is likely to nosedive.
While the move will bring some illicit cash into the light, this will
bring only fleeting changes because the bulk of the black money
economy is not cash, he said. According to Basu, its held in gold and
silver, real estate and overseas bank accounts. Further, people will
rebuild their black money stock piles in the new higher
denomination notes.
He said that to deal with black economy, mere fiscal policy will not
do. It will require institutional changes and mindsets will have to be
changed.
In a country like India, where the illegal economy is so intimately

intertwined with the mainstream economy, one inept government
intervention against shadow activities can do a lot of harm to the
vast majority, who are just trying to make a legitimate living, Basu
said.
Demonetisation puts the

brakes on trucking business
Rahul Wadke
The Business Line

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Mumbai, November 27: For the 46-year old former Army driver
Amrik Singh, the last fortnight has been nothing short of hell. The
demonetisation move has literally driven his trucking business to
the ground. He has six trucks but only two drivers, as four drivers
have left due to the cash shortage.
His last driver abandoned the truck at a petrol station in Rajasthan,

with keys in the ignition switch. Singh had to travel all the way from
Himachal Pradesh and make the delivery in Mumbai.
The Kargil war veteran says plying trucks on the highways is worse
than driving trucks for the Army, In the Army, life was not assured,
but at least your next meal was, he says, with exasperation.
Industry estimates that about 75,000 trucks are still stuck on

highways due to the currency shortage.
In the first week after demonetisation, about 4 lakh trucks were

stranded across the country.
For Nawany Corp, a Mumbai-based logistics and trucking firm with

150 vehicles, which primarily serves the cement majors, the
business is down by 25-30 per cent.
Chairman Ashok Nawany said the trucking business is driven by

cash-in-hand for drivers, but with liquidity under stress, business
has suffered.
Some banks that provide working capitals loans and other loans to
the transportation sector, have placed facilities such as overdraft on
hold. Banks have started negatively rating transporting companies,
he said.
Low credit profile:
A section of bankers has taken a view that demonetisation has hit
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the ability of the transportation companies to pay back loans.
As the month end is approaching, salary time is coming closer but

banks are hesitant about providing short-term debts, Nawany said.
For Vice-Chairman of Patel Roadways, Areef Patel, who manages

1,500 trucks for his company, business has sunk by 40 per cent
since the November 8 announcement. Patel wonders how it would
be possible to provide 1,500 credit cards to his drivers overnight for
travel expense.
How can drivers eat at highway dhabas (roadside restaurants)

when their cash is of no value? For driving the truck, they have to
eat. Some fuel outlets do not accept old notes, who should the
drives call for help? The PM or the FM?, he asked.
Bhavik Chinai, founder and CEO of Vamaship, a logistics aggregator,

said that most ATMs in rural areas are yet to be recalibrated for new
notes. Therefore, the goods deliveries are getting delayed. But on
the other hand, due to currency issue, use of Paytm and aggregating
platforms is rising.
Because of the crisis, shippers are getting directly connected with

transporters. The transactions are happening through cheques plus
the middlemen are getting pushed out of the business, he added.
Demonetisation drive will have

varied effects on hospitality industry
Anil Urs, The Business Line

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BENGALURU, November 28: Over the short and medium terms, the
demonetisation drive will have varied effects on the many sections
of the hospitality industry in the country, but in the long-term will
positively impact the growth of the hospitality sector, said
Mandeep Lamba, Managing Director - Hotels, JLL India.
Often, the strong season for the hospitality sector in the country
extends from October to March which, to a large extent, defines the
success for the industry in any given year. The lack of available
currency will force some hospitality customers to either postpone /
cancel their travel and accommodation or to use hospitality products
that easily allow the use of the other modes of payments, he
explained.
The demonetisation drive will benefit the organised hospitality

sector in India the most. Combined with the general uptake in the
sector, the movement of customers to the organised sector due to
ease of alternate modes of payment will positively impact the
market.
However, given the larger base of hotel rooms in the country is in

the unorganised sector, we anticipate the general performance of
the industry to witness some stress in the short term.
The hospitality and the tourism markets are renowned for their
ability to create a large number of direct and indirect jobs in the
country. With the inability of customers / tourists to easily spend on
frills due to lack of available currency, the unorganised industry will
suffer the most in its ability to create new jobs.
The impact of demonetisation will also be felt by the suppliers of

consumable goods, who often work on cash transactions with their
wholesale counterparts.
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Narendra Modi may lose rural

support due to demonetisation
Bibhudatta Pradhan & Pratik Parija

The Mint
Five states, including UP, will go to elections, leaving

the BJP vulnerable to a voter backlash if poor voters
see no benefit from the demonetisation drive
New Delhi, November 27 (Bloomberg): The most ardent supporters

of Prime Minister Narendra Modis surprise currency withdrawal are
those youd least expect: rural poor, who are suffering the most
with the prolonged cash shortages.
But the backing of many from villagesbased on a belief that Modis

actions will even out the scale of inequality and reduce
corruptionmay be short-lived.
The jury is still out on the political and economic impact of the
decision to target unaccounted cash. And it will be another two
months before the government releases inflation, industrial
production and growth figureskey areas that may be affected by
the prime ministers shock move on 8 November to ban
high-denomination notes, taking out 86% of circulating currency.
Meanwhile, five states, including the most populous state of Uttar

Pradesh, will go to elections, leaving the ruling Bharatiya Janata
Party vulnerable to a voter backlash if one of its major support
bases sees no benefit from the demonetisation process.
Public opinion
It is not clear whether demonetisation will eliminate so-called black

money, or who will pay the price if it fails, said Arati Jerath, a New
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Delhi-based author who has written about Indian politics for about
four decades. It will take at least another three weeks to gauge the
economic and political impact, she said.
Jerath points to the public reaction to Indira Gandhis decision to

impose a state of emergency in 1975 as an example of how quickly
the tide of public opinion can change.
Initially people supported the emergency, welcoming improvements

in law and order and the punctuality of government officials. Later
they turned against Gandhi when they realised its negative effects,
particularity arbitrary abuse of power by bureaucrats, she said.
If the Modi government fails to address concerns around cash

withdrawals and the situation worsens, there could be food
shortages, farmers distress, layoffs, rising unemployment and a
slowdown of the economy.
At the moment people are patient, they are really giving it a

chance, waiting and watching, said Jerath. If the situation does
not improve by the middle of next month, there will be a backlash
against demonetisation.
Any effect will also be visible in provincial elections, including

agrarian states of Uttar Pradesh and Punjab, where agriculture is
the main source of income. If there is a negative fall out, then the
BJP will do very badly in those states, Jerath said.
Severe shortages
The governments decision to withdraw Rs500 and Rs1,000

notesand its inability to keep pace with demand for
replacementshas left farmers like Noor Mohammad with a severe
cash shortage.
Mohammad sold his 3.8 tons of paddy at northern Indias Karnal

wholesale market but is yet to receive the Rs87,000 payment as the
buyer does not have the new notes to pay him.
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Despite the challenges, he supports what the government describes

as a milestone policy to stamp out black moneyfunds earned
through corrupt ways and used by those seeking to avoid paying
taxes.
We struggle to earn very little, they enjoy their lives; we work in

fields, they move in big cars, said Mohammad, adding he
desperately needs the payment to buy fertilizer for his winter crop.
It is good that they will be caught. Something will happen to them.
They will live in fear.
Punish the rich
The inequality in India is so high that most rural people get a sense
of satisfactionwith this move their looted money will be caught
and their economic disparity will reduce, said Niranjan Sahoo, an
analyst at the New Delhi-based Observer Research Foundation.
Most people think they are poor because rich people looted their
money.
India has one of the highest levels of inequality in Asia and it has
been rapidly rising since 1990. Now the richest 1 % of Indians own
58.4% of the countrys wealth, Mint reported, citing global wealth
data from Credit Suisse Group Ag. It also has high rates of
corruptionIndia is ranked 76th out of the 168 countries in the
2015 Corruption Perceptions Index conducted by Transparency
International.
In rural households, which make up about 70% of Indias

population, poverty is so severe that about 74% earn less than
Rs5,000 month with more than half depending on manual labour for
their livelihood.
As the scramble for cash continued and pressure on Modi mounted,

the prime minister tried to rally public support. After
demonetisation, the poor are enjoying a sound sleep, while the rich
are running to buy sleeping pills, Modi said at a rally in Uttar
Pradesh on 14 November.
Businesses suffer
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Like Mohammad, small shopkeepers, daily wage labourers, vendors

and housewives in rural and semi-urban areas have embraced the
note ban, even as they have been forced to leave their work to stand
in long queues for hours to withdraw cash.
In a survey conducted by Cvoter on 21 November 21, nearly 87% of

respondents felt the move was hurting those with ill-gotten money
and 85% believed the inconvenience was worth the effort to fight
black money. Just over 1200 people were surveyed across 252
parliamentary areas on 21 November.
But in the cities, many business people, academics and economists

are cautious in their assessment of demonetisation, arguing that
even if it does increase bank liquidity, it will slow the growth in
short term, hurt businesses and reduce consumption.
Weddings hit
The currency crackdown has also crippled the wedding market as

the Reserve Bank of India only allows the withdrawal of Rs250,000
from bank accounts for weddings, under strict conditions.
Santosh Tewari, an auto rickshaw driver in Delhi, has no sympathy

for those who suffer with the banks restrictions and says he is
happy with Modis decision. Why is there a need to spend so much
money on a wedding?, said Tewari, 48. I can comfortably conduct
my daughters marriage with this amount.
People are positive about the move because they are focused on the
national interest, said D. Jayaraj, a professor with Madras Institute
of Development Studies.
Everybody is responding in a way that shows their allegiance to the

nation, because there is a kind of pressure to prove the
patriotism, said Jayaraj. Certainly this has affected the farmers
and the poor people. And its a jolt.
- Bloomberg
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Country already cashless: Kapil Sibal on

PM Narendra Modi's 'cashless India' dream
The Press Trust of India
New Delhi, November 27 (PTI): A day after Prime Minister pitched

for a cashless society, senior Congress leader Kapil Sibal today took
a dig, saying the country has already become "cashless" due to
demonetisation.
He said the dream of India becoming a cashless society could only

come true if there is institutional framework or arrangements to
support it. "If there are no arrangements in place, then how will
this dream realise?" he wondered.
"There have to be arrangements first... In this country, over 70

crore people are earning Rs 10,000 a month (who cannot deposit
the amount in banks), what will they do?
"There are no ATMs, no banks, no branches, people need to walk

upto 20 kms... The country has already become a cashless society as
the people don't have cash with them at the moment," Sibal said.
He said the government needs to take the states as well as the

Opposition along for moving towards such a direction.
On Modi's suggestion to the people to embrace mobile banking, he

asked how will the people do the transactions through mobiles
when most of them are illiterate and not device-savvy.
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In his monthly radio programme 'Mann ki Baat' yesterday, Modi

appealed to the people to shift to cashless system of transactions
and asked the youth to help in this process by educating the elders
and those not literate.
For the 8th straight day, Rajya Sabha and Lok Sabha were adjourned
today following vociferous protests of the Opposition on the
demonetisation issue.
CPI leader D Raja blamed the government and the prime minister
for disruption in the Houses, saying, "The government must be held
responsible for this... Prime Minister must be squarely responsible
for this impasse. Opposition is demanding that the PM sit in the
House during the debate (on the demonetisation issue)."
Stating that Modi makes "announcement" on "this same issue"

outside the Parliament, he charged that the Prime Minister "does
not want to sit and listen to the debate" and "speak inside the
Parliament".
Alleging that the demonetisation move has subjected the country

into "unprecedented financial turmoil", he said that the decision has
impacted the whole economy "adversely".
"It has already started adversely impacting the manufacturing,

service, agriculture and cooperative sectors, thereby, impacting the
whole economy adversely. It has subjected common people to a lot
of hardship, humiliation and suffering," he said.
Noting that informal sector accounts for over 80 per cent of the
employment, Raja said not all of those engaged in the sector have
access to banking system. "We are asking the government to review
its decision and allow Rs 500/1,000 notes at least till December 30
or till the alternative arrangements are done," he said, adding "the
government is not with (an) open mind (with regard) to some of the
policies."
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Going cashless:
Rising currency-GDP ratio key impediment
The Economic Times

New Delhi, November 27 (PTI): As calls for going cashless grow

louder in India, a key challenge being faced globally is to check the
continuing rise in the total value of currency in circulation and their
share in the overall GDP-- a trend particularly visible in the US,
Switzerland and Euro area.
With Prime Minister Narendra Modi's sudden move to cancel the

legal character of old Rs 500 and Rs 1,000 currency notes in the
fight against black money and corruption, the focus is all the more
high on digital payments as the way forward.
However, experts feel that continuing rise in the circulation of

currencies in economic activities could well be a key impediment in
the transformation to a cashless and digital economy.
India's cash to GDP ratio-- an indicator of the amount of cash used

in the economy -- is around 12 to 13 per cent, much higher than
major economies including the US, the UK and Euro area but below
that of Japan (about 18 per cent).
Surprisingly, another emerging economy Indonesia has a much

lower ratio of around 5 per cent.
In the case of Switzerland, ratio between bank note circulation and

GDP has been on the rise since 2007. Besides, out of the total notes
in circulation, those with denominations of 1,000 and 500 Swiss
Francs make up for more than 62 per cent of the total, as per data
available with the Swiss National Bank.
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Similar are the trends in the US, the world's largest economy, and
the Euro area, which share common currency euro.
At the end of 2015, the volume of American dollars in circulation

was little over 38.1 billion and the upward trend is being witnessed
since 2000, as per data from the US Federal Reserve.
The circulation of euro cash jumped to 1.1 trillion euros at the end
of 2016 September quarter, which is three times higher than seen in
2003, Deutsche Bank said in a recent report.
With respect to India, a July report, jointly published by Google and

Boston Consulting Group, projected that digital payments market
would account for around 15 per cent of the GDP by 2020. The
report pegged India's digital payments market size to touch $500
billion by 2020. Non-cash contribution in the consumer payments
segment would double to 40 per cent, it said.
Estimates indicate that excess cash requirement in the country's

system could be worth Rs 5 lakh crore, a scenario which assumes
significance against the backdrop of a large number of people still
remaining out of formal banking ambit.
As part of larger efforts to transform the country into a cashless

economy, the government has also set up a panel to look into digital
payments for all government-citizen transactions.
Last year, a World Bank report said that while bank account
penetration in India jumped to 53 per cent between 2011 and 2014,
the number of dormant accounts were also high. Translated into
absolute numbers, the count stood at 175 million.
As per that report, dormancy rate in India was quite high at 43 per
cent and accounts for about 195 million of the 460 million adults
with a dormant account around the world.
According to State Bank of India's Economic Research Department,

the present size of digital banking is about Rs 1.2 lakh crore.
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The recent Deutsche Bank report said that with growing use of
electronic payments, the need for physical cash is no longer
self-evident. "Indeed, cash has come under scrutiny for reasons of
monetary policy, law enforcement and efficiency. Although
cash-related evidence is scarce, facts rather than emotions should
found the debate on the future of physical cash," it noted.
On empirical basis, there are concerns that higher circulation of

currencies in the system could be a key factor in stoking the black
money menace as entities tend to hoard money. On the flip side,
concerns over possible data breach remain, as witnessed in the
recent episode where more than 32 lakh debit cards were reported
to have been compromised.
Despite turning digital, some developed economies too have been

seeing spurt in frauds. Deutsche Bank report noted that while
payments go digital, fraud follows. "An (almost) cashless Sweden
sees card fraud rising. However, the general safety of both cash and
cashless transactions in Europe is high," it added.
SBI's Economic Research Department in its report said the current

size of digital banking including credit card, debit card transaction
through PoS (Point of Sale) terminals and transaction through
prepaid payment instruments like m-wallet and mobile banking is
around Rs 1.2 lakh crore.
This size has to increase to Rs 3 lakh crore -- which is a conservative

estimate of the gap between the actual currency in circulation and
required currency in circulation, the report said. Experts opined that
abolishing cash would not completely eradicate crimes that are
driven by profit but the costs would be higher in using alternative
ways to channelise the proceeds from illicit activities.
The Committee of Officers, under the leadership of NITI Aayog CEO

Amitabh Kant, would identify and operationalise in the earliest
possible timeframe user-friendly digital payment options in all
sectors of the economy. The move, according to the government, is
an integral part of its strategy to transform India into a cashless
economy.
01-12-2016 07:58 PM
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Demonetisation: Narendra Modi's dream

of a 'cashless' economy is far-fetched
Sandipan Sharma
The Firstpost Online
First it was a war on black money. Then against terror funding.
Then against counterfeit currency. And now it is about cashless

transactions.
Next, it would be a drive to save trees by using less paper for

printing notes.
Then to make everyone lose a bit of weight, of the cash in their

wallet.
And finally, to ensure nobody calls 'Sonam Gupta bewafa'

currency notes.
on
In some form of political games, once a shot is fired, a good player

always hopes that the goalpost would keep changing to ensure the
ball hits the target, any target. Sometimes even a self-goal is
acceptable it gives a sense of achievement.
But, even by the Prime Minister's lofty standards, the dream of a

'cashless economy' has the 'Sonam-Gupta bewafa' feel to it: It
sounds both unbelievable and amusing.
01-12-2016 07:58 PM
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Connectivity
The dream of a 'cashless economy' has a ring of absurdity in a

country where last-mile connectivity is still a project in progress.
In a country of 1.34 billion, just about 34 percent population has

access to internet. This means for 86.5 crore Indians, internet is
something that exists in speeches and promises of the government.
How does the government expect these people to move around with
digital wallets? The point here is that a radical shift cannot happen
in a large economy overnight, that too without preparing the
groundwork. It takes time.
To be sure, even this figure of 34 percent connectivity might be

misleading. Many Indians may be getting partial access to the net
while in urban areas, towns, and perhaps in some villages where it
is accessible. But deep inside rural India, crores of Indians live their
life beyond the world of the wide web. How does the PM expect
these people to forget cash and go plastic? It is like Marie
Antoinette asking Parisians to go eat cake.
Access to banks
To be able to use digital money, people need access to bank

accounts. A 2015 study of global banking practices found that
around 53 percent of adult Indians have bank accounts. Out of these
accounts, 43 percent were dormant. They had reported no
transaction no deposit, no withdrawal, leave alone digital over
the past 12 months. How does the government aim to migrate a
third of Indians with either no access to banking or dormant
accounts to plastic? This is like asking people to queue up for water
near a well that will be dug up after a year. When a significant
number of people in the far-flung areas of the country still needs to
get familiar with basic concepts of formal banking, pushing them to
use plastic money at this stage is premature and will be putting the
cart before the horse. The whole process needs to be done in a
gradual manner.
There are, of course, the other issues: literacy levels in villages

among women, tribals, Dalits. In a country that is still struggling to
provide access to healthcare, schools and basic infrastructure, the
idea of a cashless economy sounds as far-fetched as a promise of a
colony on the moon.
01-12-2016 07:58 PM
24 of 30
Perhaps, the PM actually wants people to go to Hades but believes in

making the journey sound so adventurous that many would actually
look forward to it.
Lessons from developed economies
Cash, like any other commodity in the world, circulates in India

because there is demand for it. Had it been useless, the RBI would
not have been required to print currency notes worth in excess of 17
lakh crore. By creating an artificial shortfall, the government thinks
people would be forced to look for alternatives in places where none
exist.
It is like asking people to stop breathing oxygen and instead try

carbon dioxide or nitrogen. In the end, it will choke the economy.
This is evident from the experience of many other developed

countries. Cash in circulation is around 10.5 percent of the Indian
GDP. As these charts show, sucking them out of the system is
impractical, it would lead to a lot of pain unless the government and
the central bank have the contingency plan ready to put cash back
into the system without delay. In this case, there wasnt any such
plan ready.
If demonetisation were so easy, wouldn't countries like the US with

higher ratings on all development indices pull it off by now? Would
Japan be still printing its Yens, US its Dollars and the EU its Euros?
The PM's dream of a cashless economy is just an expression of his

customary haste to rush through reforms without creating the
necessary conditions for it first. He should note that Kenneth Rogoff,
the most vociferous proponent of the idea of a cashless economy
had propounded it for developed economies and over a period of 6-7
years, not at the stroke of one November midnight.
People would, of course, buy some of it. In a country where Lord

Ganesha can be made to sip milk, in an age where Whatsapp
messages and Adobe Photoshop are the priests of borrowed and
shared stupidity, even suicide can be sold as an act of infinite
01-12-2016 07:58 PM
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pleasure.
Writing for The Telegraph, Mukul Kesavan says Indians would queue
up, fall in line as long as they think their pain and sacrifice is for
nation building. "Scrabbling for cash alone won't turn people against
the government if they believe that their hardship is shared, if they
are persuaded that demonetization brings a criminal underworld to
book, if they see hoarders and black marketers suffering along
them, if only because the undeserving rich have more to lose," he
argues.
But, what if in the end it turns out that all those hardships ended up
serving just two objectives making our wallets lose some weight
and Sonam Gupta, her tag of being 'Bewafa'?
What was PM Modi's political calculation

in launching this radical exercise?
Raghavan Jagannathan
The Economic Times
In electoral democracies, all major economic decisions have a

political dimension. The Narendra Modi government's decision to
demonetise high-value currency notes is nothing if not political. It
has a fuzzy economic component (financial inclusion and digitisation
of payments), a stated end goal (reduction of black money), and an
un-stated political ambition (repositioning of Modi and his party
before 2019).
Demonetisation would not make sense without understanding the
01-12-2016 07:58 PM
26 of 30
political component in the decision.
Reason: no politician would willingly risk growth and jobs if he did

not think there would be political gains at the end of the rainbow,
especially when the pain is upfront.
The consensus is that the cash crunch will last till the next quarter
(January-March 2017). GDP growth will be adversely impacted for
at least two quarters as small businesses and traders lose out in the
cash compression that followed the elimination of 85% of currency
outstanding with the public.
Whether it is a 2% GDP growth loss, as Manmohan Singh said the

other day, or just half a percent as optimists hope, a deceleration is
unavoidable. It is unlikely that Modi did not know how this would
affect the economy, even assuming he consulted no one about
demonetisation. When a politician willingly sacrifices short-term
growth, he must be seeing a medium term pot of political gold
somewhere.
Only the prime minister can answer what his calculations were, but
from the outside this is what the political gamble seems to be about.
Modi has never hidden his desire to be a two-term prime minister,
and all his actions must be seen as relevant to ensuring he gets
another shot at office in 2019.
While no one can predict which issues will dominate the 2019
campaign, it is interesting that two of his major initiatives the
surgical strikes against terror camps and the demonetisation shock
come just when he is mid-way in his first term. On November 26
Modi completed two-and-a-half years in office, and this means he
has to come to a conclusion on whether he has achieved enough or,
rather, he is perceived to have achieved enough to give him a shot
at 2019. The demonetisation initiative suggests that he has
concluded he must be seen to have done more. Hence the
willingness to take a huge risk with short-term growth.
If one were to look at Modi's legislative and other achievements, the

laundry list is truly impressive. Inflation is under control and central
finances in good shape. The insurance, coal and minerals bills have
been passed and successful auctions held. A bankruptcy code has
been adopted. Aadhaar is now backed by law, and subsidy reforms
are well underway, with cooking gas already shifting to direct
01-12-2016 07:58 PM
27 of 30
benefit transfer (DBT). Power and coal sector problems have been
fixed (at least temporarily) and infrastructure investment has begun
in roads and railways. Some 25 crore Jan Dhan accounts have taken
financial inclusion farthest in India's history.
Why would someone with this scale of achievement want to risk it

all by gambling on growth and inflicting huge inconveniences on
ordinary folks in the name of going after black money? Why would
he want to alienate his own core constituencies the trading
community which is worst hit by demonetisation and the urban
middle classes in the hope of gaining more elsewhere?
Elections are won not by legislative achievements and reforms, but

when voters see the gains for themselves. In 2009, the legislative
record of UPA was hardly anything to write home about and reforms
were stalled on many fronts. But UPA won a bigger mandate
because the economy was firing on all cylinders and people had
experienced some of the benefits of high growth.
In 2004, after four years of huffing and puffing, Vajpayee's

government saw growth rebound spectacularly only in its final year
(2003-04). But people hadn't begun to feel the difference.
People felt the improvement in UPA-I, and they got the electoral
benefit; NDA-I's better record of reforms went unsung.
Modi does not want to face the same fate as Vajpayee, and this is
one reason why he may be willing to court more risks in a bid to
retain power in 2019.
Consider the economy's track record under Modi: while growth has
revived, the 7% plus growth does not seem like 7%. This is
evidenced by weak underlying indicators, including low capital
investment, over-leveraged corporate balance-sheets, a spike in
bank bad loans, and a collapse in exports. Most important, the rising
GDP numbers are nowhere reflected in new jobs created.
This is the context in which Modi probably believes he needs to do

more. The calculation may run thus: if demonetisation results in
large amounts of Rs 500 and Rs 1,000 notes remaining outside the
system, RBI can write down those liabilities and pay the
01-12-2016 07:58 PM
28 of 30
government a higher dividend, perhaps as much as Rs 1.5-2 lakh

crore. Then there will be gains in terms of lower interest rates
(already happening) and higher tax revenues as undisclosed
incomes now come to the taxman's notice.
A Rs 3 lakh crore additional kitty in 2017 would be just what Modi

needs to recapitalise banks, give every Jan Dhan account holder a
cash payment (which will be touted as money extracted from black
money holders), lower taxes and increase investments in growthenhancing infrastructure. The gains may look higher than the losses
to him politically.
Who knows, it just may pay off electorally by 2019, if not in UP in

2017.
BJP minister reveals what inspired

PM Modi for blitz against black money
The India Samvad

Union Minister of State in Finance and Corporate Affairs,

Arjun Meghwal, reveals what inspired PM Modi to
take the demonetisation decision
New Delhi, November 28: Before announcing the scrapping of Rs

500 and Rs 1000 denominations in front of the countrymen on the
evening of November 8, Prime Minister Narendra Modi had directed
the officials to conduct a highly secret probe on the currency of the
nation.
01-12-2016 07:58 PM
29 of 30
Under this investigation, it was revealed that 50% currency notes of

Rs 500 and Rs 1000 were missing from the market. This confidential
report had inspired PM Modi to carry out the surgical strike against
the black money.
Union Minister of State in Finance and Corporate Affairs, Arjun

Meghwal has revealed that the government in the report found that
higher denomination of the currency was mainly being circulated in
the black money in abundance. According to Meghwal, out of Rs 14
lakh crore, half of the money i.e Rs 7 lakh crore were not in
circulation.
The secret investigation report brought to light how the black

money was affecting the economy of the country at the macro level,
Meghwal told journalist Sunetra Choudhary in an interview on
Monday. Actually, black money was being circulated in the market
through cash transfers of higher denominations of Rs 500 and Rs
1000 and a huge part of it was in the hands of hawala, real estate
operators and bullion merchants. This huge amount stayed away
from banking channels and became a hurdle in the progress of the
country.
No one paid any taxes on this amount and neither was it counted in
the Gross Domestic Product (GDP) of the country. Following this
secret investigation report, the government planned to bring back
the missing amount of Rs 7 lakh crore stashed away in the black
market.
The demonetisation decision was the part of the same planning to

convert Rs 7 trillion into white money. Till date, Rs 7 lakh crore in
old currency has been deposited in various banks across the
country. It is estimated that an amount of approximately Rs 3-4 lakh
crore will now be extorted through taxes and deposited in
government funds.
There is a possibility that nearly Rs 3-4 lakh crore in banned

currency of Rs 500 and Rs 1000 may not be deposited in any bank at
all. The currency which will not be exchanged till March 31, 2017,
will be adjusted to cope up with the losses in the next budget.
01-12-2016 07:58 PM
30 of 30
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Banking News: November 29, 2016

Compiled by: Anup Sen

From E-Group, Banking-News

Irate customers vandalise SBI branch

The India TV News

Chennai, November 28: People who had queued up at SBI

Mutum Shyamo, an SBI customer, said people who had been

From E-Group, Banking-News

Demonetisation Update by RBI

The RBI Press Release

Demonetised Rs.500 & Rs.1,000 notes for Rs.8,44,982 crore

Mumbai, November 28: Consequent to the announcement of

Banks have since reported that such exchange/deposits effected

From E-Group, Banking-News

SBI chief says hike in CRR due to

In the latest episode of Indianomics, SBI Chairman Arundhati

demand is very low.

From E-Group, Banking-News

RBI to relax cash withdrawal limits on or after Tuesday

Mumbai, November 28: The Reserve Bank of India late Monday

"It has been decided, on careful consideration, to allow withdrawals

The notification is being viewed as a relief from the central bank

lakh crore from demonetisation during November 10 and November

From E-Group, Banking-News

Banks reissuing soiled notes to beat cash crunch

Most banks hold soiled notes in their

Ahmedabad, November 28: In order to tide over the currency

The shortage of currency notes mounted after the demonetisation of

A general manager of a public sector bank said, There are issuable

From E-Group, Banking-News

To get back to normal after demonetisation,

The Credit Suisse

Mumbai, November 28: Post demonetisation, logistics and printing

To get back to normal transaction volumes we estimate up to 1,200

The Rs 2,000 note is not an ideal transactional currency. This note

From E-Group, Banking-News

Kaushik Basu flays demonetisation, says it is likely to fail

The Nes-18 Online

While Kaushik Basu is supportive of the intent behind the policy,

New Delhi, November 28: Former chief economic adviser to the

He is currently the C. Marks Professor of International Studies and

Demonetisation was ostensibly implemented to combat corruption,

He also criticised the poll conducted on Prime Minister Narendra

Demonetisation is mostly hurting people who arent its intended

for the children or the household, he said.

In a country like India, where the illegal economy is so intimately

From E-Group, Banking-News

Demonetisation puts the

The Business Line

His last driver abandoned the truck at a petrol station in Rajasthan,

Industry estimates that about 75,000 trucks are still stuck on

In the first week after demonetisation, about 4 lakh trucks were

For Nawany Corp, a Mumbai-based logistics and trucking firm with

Chairman Ashok Nawany said the trucking business is driven by

Low credit profile:

A section of bankers has taken a view that demonetisation has hit

the ability of the transportation companies to pay back loans.

As the month end is approaching, salary time is coming closer but

For Vice-Chairman of Patel Roadways, Areef Patel, who manages

How can drivers eat at highway dhabas (roadside restaurants)

Bhavik Chinai, founder and CEO of Vamaship, a logistics aggregator,

Because of the crisis, shippers are getting directly connected with