This thread has been the hottest in team-bhp for a while now. Many are sharing their experiences and opinions in this "non-political" forum. This is a welcome break from all the "political" opinions we see in the media.
Apologies if this turns out to be a long post. I had some time in the weekend to myself, so I thought why not do some research on the events leading up to demonetization. Particularly I was interested to know
why Nov. 8th was the day of announcement of demonetization.
Best way to understand the chronology is to look at the RBI notifications issued to banks on a regular basis. These notifications are all available in their website at
https://rbi.org.in/Scripts/NotificationUser.aspx and very much in the public domain.
If you closely read many notifications, RBI (in line with Govt. policies) have been issuing several directives to banks to ease retail banking norms for general public.
In the interest of time and space, I am not going to cut and paste links for all the notifications I have mentioned below. I will just give the date and title with my analysis of the notification. In some places I have pasted an extract for better explanation. You can go to the above link and read the full notification if needed.
Jul 16, 2015 : Guidelines on issue of ATM-cum-debit cards Quote:
3. As a precursor to moving towards a less-cash economy, it is necessary to inculcate the habit of using electronic payment channels among bank customers. With this in view, it has been decided to permit co-operative banks which are CBS enabled, to issue ATM cards/ ATM-cum-debit cards in tie-up with a sponsor bank.
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This was the first notification I saw where RBI clearly mentioned its intention of going to a "less-cash" economy. Note that, this direction was landmark in the sense it gave many non-banking firms ability to issue ATM facility. Co-oprative banks in rural areas were the immediate beneficiaries of such a scheme.
Aug 27, 2015 : Detection of Counterfeit Notes
Quote:
i. Over the Counter
Banknotes tendered over the counter should be examined for authenticity through machines and such of these determined as a counterfeit one, shall be stamped as "COUNTERFEIT NOTE" and impounded as detailed in Annex I. Each such impounded note shall be recorded under authentication, in a separate register.
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Impounding "counterfeit notes" was always a challenge for banks. RBI issued guidelines to impound fakes such that they could be sucked out of the system. But, how many people came to bank for depositing cash? I am sure RBI or banks did not achieve the targets regarding counterfeits.
Sept 24, 2015 : Banknotes with new numbering pattern and special features for the visually impaired Quote:
3. Special features for the visually impaired have been introduced in order to make it easier for them to identify banknotes, the size of the Identification Mark in ₹ 100, 500 & 1000 denominations has been increased by 50% and angular bleed lines - 4 lines in 2 blocks in ₹ 100, 5 lines in 3 blocks in ₹ 500 and 6 lines in 4 blocks in ₹ 1000 denominations, have been introduced.
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This is a very interesting notification. If you notice, some of these security features are carried over to the new Rs. 2000 and Rs. 500 notes. I am pretty sure, post introduction of these security features, there were no fakes of this particular format notes.
Dec 23, 2015 : Withdrawal of all old series of Banknotes issued prior to 2005
This is a notification which was issued time and again, in fact, each such notification mentions extension of the deadline for withdrawal of old notes. The Pre-2005 notes were the ones which could be easily faked. The security features were compromised and many intelligence agencies cited presence of printing facilities abroad that print these notes. Again, I think, RBI/banks wouldn't have got sufficient deposits of these old notes given the number of cash circulation and black money in the system.
June 30, 2016 : Pre-2005 series of Banknotes - Revision of exchange facility
Six months after the notification of Pre-2005 series notes, RBI revised the exchange policy so that more such notes could be sucked out of the system.
July 20, 2016 : Master Direction on Currency Distribution & Exchange Scheme (CDES) based on performance in rendering customer service to the members of public
Quote:
The maximum amount of reimbursement for the machines will be as follows–
For Metro / Urban areas –
1. Cash Recyclers – 50% of the actual cost of the machine or ₹ 2,00,000 whichever is lower
2. ATMs dispensing lower denomination notes (up to denomination ₹ 100) – 50% of the actual cost of the machine or ₹ 2,00,000 whichever is lower
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For Semi-urban / Rural areas –
1. Cash Recyclers – 60% of the actual cost of the machine or ₹ 2,50,000 whichever is lower
2. ATMs dispensing lower denomination notes (up to denomination ₹ 100) – 60% of the actual cost of the machine or ₹ 2,50,000 whichever is lower
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RBI came up this scheme to incentivize banks so that they can be prodded to improve the circulation of smaller notes. Note the below lines in the notification. You can well imagine which direction RBI and the Govt. was moving to.
Sept 8, 2016 : Income Declaration Scheme, 2016 – Acceptance of Cash Over the Counter
Everyone know about this scheme and how political it turned out to be. Though this scheme was introduced sometime in July, this notification is for accepting cash over the counter by banks. Banks were hesitant to accept large cash from public under this scheme. This was another attempt at sucking out unaccounted/undeclared cash from the system. Note that prior to this scheme, RBI had already given clear directions regarding counterfeits and pre-2005 notes. So, a base of setup prior to the roll out of this scheme.
Nov 02, 2016 : Dispensation of Rs.100 denomination banknotes through exclusive ATMs
Quote:
3. 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.
4. With a view to encourage the banks in that direction, it has been decided to conduct a pilot project wherein 10% of the ATMs in the country will be calibrated to dispense Rs.100 banknotes exclusively. You are, therefore, advised to configure / calibrate 10% of your ATMs to facilitate this arrangement.
5. As the process involved in configuring the requisite number of machines is not complex, the banks are required to complete the exercise within 15 days from the date of the circular and report compliance. For this purpose, banks are free to select the branches with the sample covering relatively large number of centres / states.
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This notification seem to be the most direct yet from RBI to the banks. There was clear instruction to banks to calibrate and re-configure ATMs to dispense Rs. 100 notes.
But something happened from then till the day of announcement that is Nov 8th 2016.As you can see, RBI had given 15 days to banks to comply with this request. So, why didn't RBI/Govt wait for 15 days till the ATMs would be re-calibrated?
I strongly believe there was a leak at the top. The new Rs. 2000 notes denomination photos appeared in whatsapp a day earlier. I also received the messages albeit there were some funny add-on like GPS chips etc. I think this leak was totally unexpected. Once if more details of the new notes emerged, any CA or banking official would have realized that the ATM's had to be reconfigured to fit the notes into the cassettes. People could have definitely sensed that something was amiss and probably the old notes would be demonetized.
Note that on Oct 12th Chandrababu Naidu claimed that the maximum undeclared wealth disclosed under the IDS scheme was from Hyderabad from someone to the tune of Rs. 10000 crore. Now, that is a whopping sum. In the same speech he also mentioned demonetizing Rs. 500/Rs. 1000 notes.
Was there a leak somewhere that he came to know about it months in advance about this whole strategy? Govt had categorically stated in various fora that under the IDS scheme the details of people will be kept absolute secret. How did he know the figure then? (Ref :
http://indianexpress.com/article/ind...naidu-3078669/ )
Besides the above revelation, it is also possible that the leak of the new Rs. 2000 must have made the Govt/RBI sit up and make a decision. Otherwise, it is highly unlikely that the PM will announce such a decision just a day before he was supposed to go to Japan ( Note that foreign trips are decided months in advance)Another point why this sudden decision .. The new notes have the signature of the new RBI governor who officially took charge from Sept. 1st. For printing, the plates needed to be signed. So, I think the plates were finalized and signed only after he took charge. The printing of Rs. 2000 notes would have started post him taking charge. I think the printing of Rs. 500 notes may not have started till after the announcement.
RBI may not have thought of introducing them immediately. That explains why the new Rs. 500 notes are coming into the market very slowly. At least a week after the announcement, people had not seen the new Rs. 500 notes. To squeeze the black money and the counterfeits, it was necessary to keep this announcement or rather intention of demonetization as absolute secret. Else the entire purpose of sucking the counterfeits and black money out of the system would be defeated. Even if a whiff of the intention leaked out and how much ever denial the Govt. made, they could never have been able to effectively execute this decision in future. All black money hoarders would have started getting rid of cash in various ways which could have in fact played with prices of real estate, gold/diamond etc. This would have been more harmful in the longer term.I am not hinting that there was selective leak by the Govt. itself as that would also have been disastrous given the kind of politicians we see in the power corridors of the Govt. As a last note : See the below notification post the announcement
Nov 09, 2016 : ATMs –Non-dispensing of Old High Denomination Notes – Closure of operations
Quote:
II. Recalibration of ATMs to dispense ₹ 100 and ₹ 50 banknotes through ATMs
Banks shall ensure (if required, through their outsourced / managed services providers) that:
at least one cassette in each ATM is configured to dispense banknotes of ₹ 100 denomination immediately.
ATM fit notes (fresh and/or recyclable) are supplied to the necessary agencies to ensure the above; and
If feasible, additional cassettes in the ATMs to dispense non-SBN banknotes are configured.
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This also indicates that, Govt./RBI had beefed up small notes availability to banks, however, many banks did not get enough time to recalibrate the ATMS. Or maybe many didn;t think it was was not as easy as it would seem.
Well, ask an IT software engineer how long it will take to change the size of the column that stores address in any large application.
Note : The above is entirely my personal opinion after analyzing the RBI notifications and juxtaposing them with today's situation. I do not subscribe to any political party or their ideology.