Banking News Dated 31 August 2017

Leave a Comment

Banking News: August 31, 2017

RBI says got back almost all of banned currency notes

RBI says got back almost
all of banned currency notes

The Reuters
Published on August 30, 2017

Mumbai, August 30 (Reuters): Indians returned almost all of the estimated Rs. 15.4 lakh crore ($242 billion) in high-currency bills removed from circulation in a shock move late last year, the Reserve Bank of India (RBI) said in its annual report out on Wednesday.

A total of Rs. 15.28 lakh crore was returned to the central bank through lenders, a number that could renew scrutiny about the effectiveness of the measure announced by Prime Minister Narendra Modi in November.

By rendering 500 and 1,000 rupees illegal in one stroke and imposing restrictions on how the money could be returned to lenders, Modi had been intending to make it difficult for hoarders of undeclared wealth, or black money, to exchange their undeclared cash for legal tender.

But it seems that nearly all of it was returned by individuals, implying that there was a very small amount of unaccounted money held in cash by those seeking to conceal it.

But economists have said the measure has had positive impact as well, including bringing in cash into the banking system, and hence lowering the cost of loans, even as significant parts of the economy were disrupted.

“While this shows that demonetisation exercise has not yielded a large one time gain, it has led to financialisation of dormant savings and helped bring down lending rates,” said A. Prasanna, economist at ICICI Securities Primary Dealership Ltd in Mumbai.
Modi's so-called “demonetisation” bill contributed to the growth easing to its slowest pace at 6.1 percent in January-March, its slowest pace since late 2014 as large parts of India's economy was dependent on cash transactions.

Shame on RBI': P Chidambaram
On Figures Post Notes Ban

The Press Trust of India
Published on August 30, 2017

New Delhi, August 30:  Former finance minister P Chidambaram today used the Reserve Bank of India figures to lash out at it, saying one per cent of the demonetised notes not coming back to the central bank was a "shame on RBI".

He also questioned the Narendra Modi government whether its demonetisation decision was designed to convert black money into white. The Congress said the government utterly failed and 104 innocent lives were lost during the exercise and demanded an apology from the prime minister.

"99% notes legally exchanged! Was demonetisation a scheme designed to convert black money into white?" Mr Chidambaram said on Twitter.

The Congress leader said that the economists behind the demonetisation move "deserve Nobel prize" as the RBI gained Rs. 16,000 crore, but lost Rs. 21,000 crore in printing new notes.

"Rs. 16,000 crore out of demonetised notes of Rs. 15,44,000 crore did not come back to RBI. That is 1%. Shame on RBI which 'recommended' demonetisation.

"RBI 'gained' Rs. 16,000 crore, but 'lost' Rs. 21,000 crore in printing new notes! The economists deserve Nobel Prize," he said in a series of tweets.

All but 1.4 per cent of the old Rs. 1,000 notes have come back into the banking system post demonetisation, the RBI said in its annual report for 2016-17.

Out of 632.6 crore pieces of Rs. 1,000 currency notes in circulation, 8.9 crore have not been returned post the note ban last November, it said.

The government had on November 8, banned old Rs. 500 and Rs. 1,000 notes in an attempt to weed out black money in the country. The old notes were allowed to be deposited in banks, with unusual deposits coming under income tax scrutiny.

Congress in-charge of communication department Randeep Surjewala said demonetisation is nothing but a "disaster" in which 104 innocent people were killed while 'corrupt' made 'windfall gains'.

He also said that the demonetisation scam not only dented institutional sanctity of the RBI, but also credibility of India abroad and demanded an apology from the prime minister.

"Utterly failed #Demonetisation is nothing but a disaster in which 104 innocent people were killed while 'Corrupt' made 'Windfall Gains'.

"Demonetisation Scam, not only dented institutional sanctity of RBI, but also credibility of India abroad. PM should apologise to the nation," he said in a series of tweets. He also said, "Rewind: Modiji's obfuscation exposed once again. On Independence Day, Prime Minister claimed to have unearthed Rs. 3 Lakh crore black money post demonetisation."

The reality, he said, is that the RBI data released today proves only Rs. 16,000 crore out of the 15.44 lakh crore money in circulation came back and of this, Rs. 9,000 crore is still stuck. "Perspective: This Rs. 16,000 crore is just 1 pc of the total notes demonetised," he said.

In another tweet, Mr Surjewala said, "Dr Manmohan Singh predicted that #Demonetisation will reduce GDP by 2% and it did. Only the Economy suffered due to this massive folly!"

The great DeMo deception:
RBI data show 99% of recalled notes were
returned, striking at core of govt's rationale then

The Telegraph
Published on August 31, 2017

The Narendra Modi government's bluff and bluster
behind demonetisation has been blown to bits.

Mumbai, Aug. 30: The RBI today put out statistics that showed 99 per cent of all the scrapped Rs 500 and Rs 1,000 notes had come back, destroying the rationale for the most capricious decision of the Modi government.

Currency worth Rs 15.28 lakh crore flowed back into the banking system after Prime Minister Modi's shock announcement last November that affected notes valued at Rs 15.44 lakh crore - or 86 per cent of all currency in circulation then.

The central bank tucked away the hugely embarrassing return figure on Page 195 of its 224-page annual report -and peppered it with the caveat that the figure could change after the authenticity of all the deposited notes, stashed in over 4,000 currency chests across the country, is established.

"The value of the Specified Bank Notes (SBNs) received by the currency chests has been credited to the banks' account on 'said to contain basis'. Till such time these notes are processed by the Reserve Bank for their numerical accuracy and authenticity, only an estimation of SBNs received back is possible. Subject to future corrections based on verification process when completed, the estimated value of SBNs received as on June 30, 2017 is Rs 15.28 trillion (Rs 15.28 lakh crore)," the RBI annual report said.

The RBI statement means that notes worth only Rs 16,000 crore did not come back.

The annual report showed that out of the 6,868 million pieces of Rs 1,000 notes, as of March 31, 2017, only 89 million pieces hadn't filtered back into the system - indicating that almost 98.7 per cent of these notes were deposited with the banks.

Late in the evening, the Union finance ministry released a note saying Rs 8,900 crore worth of old Rs 1,000 notes and Rs 7,100 crore of Rs 500 notes had not come back.

It is not clear when the currency verification process will end. A former deputy governor of the RBI claimed in a recent television interview that the final figure might not come out until next April.

Critics of the government pounced on the opportunity to launch a furious attack on the government.

In a series of tweets, former finance minister P. Chidambaram said: "Rs 16,000 crore out of Rs 15,44,000 crore did not come back to RBI. That is 1 per cent. Shame on RBI which 'recommended' demonetisation.... Was demonetisation a scheme designed to convert black money into white?"

The RBI has been stonewalling calls for information on the amount of scrapped notes that had come back.

In its last official version earlier, the RBI had said that a sum of Rs 12.44 lakh crore had come back by December 10 - with almost three weeks to go before the expiry of the 50-day deadline for the return of the scrapped currency. But after that revelation, the RBI simply clamped down on information - until now.

Jaitley's new spin

The government scrambled to try and defend its demonetisation exercise.

Finance minister Arun Jaitley claimed that the government had never believed that the money would not come back - a startling admission after Modi virtually chortled over the way he had outwitted black money hoarders in the country.

"The Rs 500 and Rs 1,000 notes hoarded by anti-national and anti-social elements will become worthless bits of paper," Modi had said, marvelling at his "surgical strike" against terrorists who, he claimed, had been flooding the country with fake notes.

This assertion has also been busted. The RBI said that soon after the demonetisation was announced, it had launched a nationwide exercise to determine the density of fake Indian currency notes. A two-stage cluster sampling technique adopted at the currency chests revealed that 7.1 pieces of Rs 500 denomination and 19.1 pieces of Rs 1,000 denomination were fake out of every million notes processed.

"The value of the counterfeit notes is a minuscule Rs 41 crore," Soumya Kanti Ghosh, chief economic adviser to the State Bank of India, said in a note. "The number of suspicious transaction reports by banks, financial institutions and intermediaries also increased by 345 per cent, which could possibly lead to increase in future tax revenues."

Struggling to overcome the embarrassment over the RBI revelation, Jaitley tried to put a new spin on the rationale behind the demonetisation.

He said the government wanted to flush out the black money from the cupboards and vaults at homes into the bank accounts so that the ownership of the currency held by the public could be clearly established. This, he said, would boost the tax revenues of the government. In fact, personal income tax collections had gone up by as much as 25 per cent after demonetisation.

The Opposition targeted the government on the flush-out claim, too.

Bengal chief minister Mamata Banerjee asked: "Was the system deliberately set up by Government of India to facilitate dealers of black money to convert black money into white in lakhs of crores?"

"Demonetised black money successfully laundered! Someone in government should be given Bharat Ratna for this conversion," Congress leader Kapil Sibal said.

RBI hit

The demonetisation exercise has also wrecked the RBI balance sheet. The central bank, which follows a July-June financial year, saw the expenditure incurred on printing of notes during 2016-17 soar 132.8 per cent to Rs 7,965 crore, compared with Rs 3,421 crore in the preceding year.

The total expenditure of the RBI also increased by 107.84 per cent from Rs 14,990 crore in 2015-16 to Rs 31,155 crore in 2016-17 primarily due to the increase in expenditure on printing new notes as part of the remonetisation of currency and provisions.

The annual report added that the supply of notes in the year at 29,043 million pieces was 37 per cent higher than the total supply in the previous year at 21,195 million pieces.

As the central bank printed new notes, it incurred higher freight and forwarding expenses. For urgent supply of notes in the country, notes were also remitted by air, resulting in increased expenses on freight charges, the report said.

Demonetisation also hurt the RBI's net income from domestic sources, which decreased by 17.11 per cent from Rs 52,157 crore in 2015-16 to Rs 43,232 crore in 2016-17. This arose mainly as the central bank paid interest to banks as it mopped up surplus liquidity (arising because of huge deposit flows into banks) through the reverse repo window.

Wage talks: IBA, Staff Unions agree to
disagree on most outstanding issues

Vinson Kurian
The Business Line
Published on August 30, 2017

Thiruvananthapuram, August 29:  Indian Banks’ Association (IBA) and staff unions have failed to find common ground on most of the outstanding issues in a warm-up session ahead of the 11th bipartite settlement talks.

A sub-committee of the IBA negotiating committee had held a round of talks with the unions (AIBEA, NCBE, BEFI, INBEF and NOBW) in Mumbai on August 23.


IBA was represented by Rakesh Sharma, MD & CEO, Canara Bank, who is the Chairman of the sub-committee, while all five unions were represented on the other side.

IBA held out its case for introduction of the ‘cost-to-company’ concept and alluded to the need for fixed-cum-variable pay and performance-related wages to recognise efficiency and performance. It suggested that the new system can be made to apply for future employees with an option extended to existing employees.

But the unions raised apprehensions and submitted that discussions should instead focus on further improvement in efficiency of the workforce as a whole and how to incentivise it.

When it came to the proposal for further rationalisation of special pay posts, the unions expressed their willingness to discuss any concrete proposal in this regard. But they reiterated the demand that the existing duties and powers need to revised with suitable increase in the quantum of special pay.

Minimum qualification

The minimum qualification for recruitment of clerical staff in banks made for an important topic for discussion.

IBA’ case was since the minimum qualification set now is graduation, the additional two increments given under this head should be discontinued. But the unions said this was not acceptable since there was a need to peg back the minimum qualification to 12th standard.

IBA also wanted to amend the disciplinary action provisions to provide for simultaneous criminal proceedings as well as departmental proceedings. The unions rejected it since they apprehended that the proposed amendment would go against the interest of employees.

Premature retirement

The unions did not also agree with the proposal for a provision to provide for premature retirement of employees in public interest any time on completion of 55 years of age or 30 years of service.

They shot down another suggestion that the ensuing 11th bipartite settlement contain a provision for outsourcing as per the Reserve Bank guidelines.

But they agreed on the need for meaningful discussions over grant of stagnation increment uniformly at an interval of two years after reaching the maximum; change in DA scheme based on 2001=100 Index series; improvement in sick leave; grant of maternity leave in combination with other leave; paternity leave to cover child adoption; and LFC entitlement.

Other demands including additional load on wage revision, revised pay scales and allowances, revised DA formula and HRA rates could be discussed at the full negotiating committee since these are common to both employees and officers.

The next round of meeting of the sub-committee will be held on September 6.

TMC MLA voices opposition
to privatisation of banks

Vinson Kurian
The Business Line
Published on August 30, 2017

Kolkata, August 29: Mahua Moitra, a Trinamool Congress MLA, has expressed her party’s opposition to the moves aimed at privatisation of banks. Moitra said this while taking part in a panel discussion on '70 years of Independence – Achievements, status and future’ at the first youth conference of All India Bank Officers’ Confederation (AIBOC) at Kolkata.

‘Banks no exception’

“In a vast country like India, we need to have public sector undertakings in all the sectors and banks are no exception,” she said.

According to her, freedom and power bring responsibility. Freedom cannot be compromised for an economic consideration. As responsible citizens belonging to banking industry, young officers must involved themselves more in public awareness campaigns.

Prosenjit Basu, economist, cautioned that the status of the country as the "fastest growing economy'' is a great lie. “When investment is coming down, the economy cannot grow, which is what obtains today. Credit growth at this point of time is the lowest in the post-Independence period,” he added.

Price of demonetisation

There is something fundamentally wrong with the way GDP is being calculated. As for demonetisation, it has tested the abilities of the bankers and 11 of them have lost their life.

“Let the government tell the people what it has actually achieved. The costs have been huge in terms of printing of notes and servicing of the deposits but we are yet to know what the nation gained.”

If the society does not ask this question and RBI gets away with it, it means blind faith is taking over, Basu said.

The amount of NPAs written off is more than enough to re-capitalise banks, if only they were effectively recovered. The government should be made accountable for its failure to do so.

Insolvency code ploy

Earlier, DT Franco, General Secretary, AIBOC, in his inaugural address, sought to recount how public sector banks have systematically reduced the staff strength over the years.

This has been reversed only after opposition by AIBOC. “We need to analyse the situation in respect of NPAs which have piled up due to the wrong policies of the government.”

The insolvency code is nothing but a ploy to declare a corporate as insolvent, he said. It merely absolves them of their responsibility of financial mismanagement.

Franco also referred to the problems faced by young officers in the name of cross-selling, work pressure due to shortage of staff, working on holidays and late-sitting.

CVC tasked PSUs, PSU Banks & Insurance Companies for awareness against corruption

The Press Trust of India
Published on August 30, 2017

New Delhi, August 30: The Central Vigilance Commission (CVC) has tasked public sector undertakings, banks and insurance companies with raising awareness against corruption in schools, colleges and gram sabhas across the country.

The anti-corruption watchdog, in a recent order, has allotted cities to each PSU, bank and insurance company.

“Laying stress for creation of awareness on the ill-effects of corruption amongst school and college students, the Commission desires that special efforts may be made by each field unit/branch of every central public sector enterprise to reach out to students in at least two schools and three colleges,” the CVC said in the order.

The order stated that a total of 163 cities and 96 organisations have been chosen for the purpose. “Activities conducted in schools and colleges need to be sustained over a period of time to ensure that ethical values are ingrained permanently in the minds of young generations,” it said.

“All organisations may, therefore, encourage establishment of ‘Integrity Clubs’ in schools and colleges as children are the future assets of the country and it is important to cultivate moral values in them,” the probity watchdog said.

While ‘Awareness Gram Sabhas’ would suffice in rural areas, in urban areas, the public can also be engaged in discussions about corruption though seminars/workshops.

“Similarly, public sector banks may also ensure that their branches located at block headquarters and district headquarters organise such seminars at each block and at each district headquarters,” it said.

The CVC has suggested extensive use of social media, bulk SMS/email, WhatsApp, electronic and print media and the like for spreading awareness.

The State Bank of India, for instance, has been given 50 cities including New Delhi, Patna, Gaya, Raipur, Indore, Bokaro and Surat for outreach activities, according to the Commission’s order.

Bank of Baroda has been asked to conduct anti-corruption related activities in 19 cities, including Bikaner, Kota and Lucknow.

Indian Oil Corporation Ltd has got 14 cities, including Guwahati, Kolkata, Rajkot, Vadodara, Chennai and Paradip.

Similarly, Hindustan Petroleum Corporation Ltd has been asked to hold such programmes in Visakhapatnam, Greater Mumbai and Alwar among others.

The measure is a part of activities for Vigilance Awareness Week to be held from October 30 to November 4.

“Corruption undermines political development, democracy, economic development, the environment, people’s health and much more. It is, therefore, imperative that the public must be sensitised and motivated in the Commission’s anti-corruption efforts,” the CVC order said.

Commercial banks surpass
farm credit target by 28%

The Business Line
Published on August 31, 2017

Priority lending by public sector banks remained flat in FY2017

Mumbai, August 30:  Commercial banks have surpassed the annual national target for agricultural credit by 28 per cent during 2016-17 while all other categories of banks under-performed, according to the RBI.

The overall flow of credit to the agricultural sector, however, has exceeded the target at Rs. 10.658 lakh crore against the target of Rs. 9 lakh crore.

In 2015-16, the target was Rs. 8.5 lakh crore while total disbursal was Rs. 9.15 lakh crore, the RBI said in its annual report for 2016-17.

In FY17, the performance in total priority sector lending was flat in public sector banks at Rs. 19.89 lakh crore against Rs. 19.85 lakh crore in the previous year.

In private sector banks, however, this went up to Rs. 7.11 lakh crore from Rs. 6.48 lakh crore, according to the report.

Priority sector loans include small-value loans to farmers for agriculture and allied activities, MSMEs, to the poor for housing, and education loans. Social infrastructure and renewable energy are also eligible categories under this category.

An important development during 2016-17 was the launch of priority sector lending certificates scheme as a mechanism to incentivise banks having a surplus to lend to different categories of the priority sector.

A platform to enable trading in the certificates has been provided by the RBI through its core banking portal e-Kuber. “The PSLC platform recorded active participation from all eligible entities, including urban cooperative banks and small finance banks, during 2016-17,” the report said.

Was demonetisation worth it?

Aparna Iyer, The Mint
Published on August 30, 2017

RBI believes that the harmful effects of demonetisation on the Indian Economy are transient. The govt needs to ensure that its benefits are not.

Now that the Reserve Bank of India (RBI) has given some details of the impact of demonetisation in its annual report, the question on everyone’s lips is: Was demonetisation worth all the disruption?

The answer to this question is a yes and a no.

Nearly 10 months ago when Prime Minister Narendra Modi through a speech purged Rs 15.44 trillion of cash held by the country’s citizens, it was touted as a masterstroke that would rid the country of illicit money.

The pitch for demonetisation was that the bulk of Rs 500 and Rs 1000 notes were stored as illicit wealth, besides being easily counterfeited to fund illegal activities.

Fast forward to today and the numbers in the annual report of the country’s monetary authority show that some of this is true.

Let us set aside the argument that black money resides not just in cash but in real estate, offshore investments and other routes.

The number of suspicious transactions reported by banks to the Financial Intelligence Unit in fiscal year 2017 (FY17) has surged to 361,214 from just 61,361 in the previous year. Add the fact that 98.96% of the high-value notes returned to the banking system, and it would seem that illicit money did find its way back into the system.

But now what? Fiduciary agents should have sprung to action, which is not evident. Public statements by the revenue department and other officials have at best been pithy assurances rather than data or facts.

The argument of fake notes too seems to have held up a bit. In FY17, fake notes detected rose 20% from the previous fiscal figure but what was telling is that fake pieces of Rs 1000 detected rose a massive 79%. But even then, the total detection is less than 1% of the total currency pieces in circulation. Already, fake pieces of the new Rs 2000 and Rs 500 notes have been detected.

Which brings us to whether demonetisation cleaned up businesses or individual behaviour. It is tough to say so convincingly. There is no guarantee that the new notes won’t be used to store illicit money, they are already 50% of total currency in circulation because of rapid remonetisation.

An unintended benefit that demonetisation has given is the fall in interest rates after the surfeit in liquidity— this has helped borrowers, but hurt savers.

Also, Indians have begun to transact digitally more often than before as the surge in digital transactions shows. But we still have a long way to go. After all, 99% of the demonetised cash by value is back into the economy, according to RBI.

At what cost have these benefits come?

It is worth a repeat that demonetisation hurt every nook and corner of the economy. Industrial output crashed, services growth slowed and economic growth decelerated, best shown by the massive fall in growth excluding agriculture and government spending.

What will indeed make Indians pay more taxes are the tax reforms and the laws to monitor real estate. RBI believes that the harmful effects of demonetisation on the economy are transient. The government needs to ensure that its benefits are not.

RBI says 99% banned notes are
back; where is the black money?

Dinesh Unnikrishnan
The Firstpost Online
Published on August 31, 2017

Nearly 10 months after Prime Minister Narendra Modi announced demonetisation, the Reserve Bank of India (RBI) has finally come out with provisional figures on the count of old Rs 500, Rs 1000 notes that were returned to the banking system. Evidently, the number would make neither the government, nor the central bank happy. It shows nearly all money has returned.

Subject to future corrections based on verification process when completed, the estimated value of SBNs (specified bank notes) received as on 30 June 2017 is Rs 15.28 trillion, the RBI said in its annual report released on Wednesday evening. The total value of invalidated Rs 500 and Rs 1,000 notes at the time of demonetisation was Rs 15.44 lakh crore or around 86 percent of the currency in circulation. This means 99 percent of the demonetised currency has found its way back to the banking system. Only a little over Rs 16,000 crore of Rs 15.44 lakh crore was not returned.

And, let’s not forget, this is not the final number. The RBI is yet to count old notes received at cooperative banks and old notes submitted by citizens an institutions of Nepal. By the time these numbers too gets added up, the likelihood is that the final figure will be much closer to 100 percent mark. There are other interesting details about demonetisation in the RBI report. It says, RBI’s cost of printing currency post demonetisation (mainly on account of the new Rs 2,000 and Rs 500 notes), escalated to Rs 7,965 crore, more than double the figure in the previous year when it stood at Rs 3,421 crore.

The number of counterfeit notes or fake notes detected during the exercise is only minuscule, just about 7.6 lakh pieces, as compared with 6.3 lakh pieces in the year ahead.

With the figures finally out, it is now safe to conclude that on a cost-benefit analysis, the RBI has only losses due to the demonetisation exercise it ‘recommended’ to the Modi government. No big black money in cash got perished outside the banking system as the government expected initially.  On the contrary, both the RBI and government had to take a hit as far as the cost of this humongous exercise is concerned -- one of the major reasons why the RBI’s dividend to the government fell by half this time.

The RBI transferred just Rs 30,659 crore as dividend to the government for the year ended June 2017, less than half the previous year's levels. Last year, it transferred Rs 65,876 crore to the government. This year, the expectation was Rs 74,901 crore will flow into the government exchequer, partly due to the demonetisation gains.

Did demonetisation fail?

The answer will depend on who you ask the question to.

On 8 November, the originally stated goals of demonetisation were mainly three-- a major clampdown on the black money in the system, cash-based corruption and terror funding. There are ample evidence to understand that demonetisation hasn’t impacted corruption and terror.

With all the Rs 500 notes follow the Rs 1,000 notes returning to bank counters, the theory of black money stashed in cash outside the formal system (that isn’t accounted in any manner) getting extinguished falls flat. That leaves us with only two scenarios.

First, there was no significant black money in cash in India contrary to what a section of top economists had said.

In a jointly authored article written for Mint newspaper on 27 December, renowned economist and Columbia university professor Jagdish Bhagwati, resident senior fellow at the IDFC Institute Vivek Dehejia and Chung Ju Yung distinguished professor of international economics at Johns Hopkins University and deputy director of the Raj Center on Indian Economic Policies at Columbia University Pravin Krishna had accepted this assumption when they defended the Modi government’s demonetisation move.

“Clearly, at least from the perspective of its effectiveness in dealing with the black money issue, success has to be measured by the sum of tax revenue generated and black money destroyed. Suppose we accept the estimate that one-third of the approximately Rs 15 trillion in demonetised notes is black money,” Bhagwati and his co-authors said in the piece.

Based on this assumption, they also worked out the gains the Modi government would have had if demonetisation exercise is successful — around Rs 2,5 lakh crore. Here’s how they arrived at this figure.

“Roughly speaking, the revenue that would have been generated had that income been taxed in the first place is 30% of that (so, Rs 5 trillion times 0.3 = Rs1.5 trillion). Perfect detection of black money should now yield 50% as tax revenue (so Rs 5 trillion times 0.5 = Rs 2.5 trillion), if all black money is returned and identified as such.”

Both the assumption on black money by Bhagwati and his team and the likely gains out of it to the government do not sound convincing if one purely goes by the RBI figures.

To begin with, the government never had an estimate of black money in cash in the system. Perhaps, it was poorly advised. The flawed implementation of the programme only worsened the situation.

Demonetisation pain

Demonetisation-resulted cash crunch hit the common man hard, businesses suffered and the economic growth was hit by a significant margin.

The fourth quarter GDP fell to 6.1 percent from 8 percent from the year-ago quarter. The fall in GVA (gross value added) was even sharper to 5.6 percent in the fourth quarter from 8.7 percent in the Q4 period of previous year. Jobs in informal sector were particularly hit. Even the Rashtriya Swayamsevak Sangh (RSS) affiliated Bharatiya Mazdoor Sangh (BMS) blamed the Modi government for this.

“Under the new government, 1 lakh and 35 thousand job opportunities have been created so far but 20 lakh people have lost their jobs," Baij Nath Rai, BMS President, told the Kolkata-based daily, The Telegraph. "We have reports of job losses in the unorganised sector because of demonetisation, but how deep the impact is has to be ascertained," Rai was quoted as saying.

Now, the second scenario is that black money holders used demonetisation as a big opportunity to whiten their ill-gotten wealth directly to bank counters either directly or through benamis or in other ways (purchases/refunds/political donations etc). They now face the risk of getting caught by the taxman and possible punitive actions. But, the tax cheats would have thought that it is anyway better to face the risk of paying penalty rather than burning the loot or throwing it down the sewage. Besides, the hopes that an over-burdened tax department would take ages to lay their hands on the guilty, too, would have emboldened the crooks.

Arguably, there are some positives to demonetisation. The Modi government showed its intent to fight against black money. Also, the government and demonetisation supporters have defended the government’s massively disruptive move citing widening tax base, increased compliance, push for digital economy, and asserting that a significant amount of black money in bank accounts post demonetisation is black money. But, until now, no substantial amount of black money has been unearthed from such deposits.

In his Independence Day speech, Modi said Rs 2-3 lakh crore black money has been brought to the banking system post-demonetisation. But, in August, Minister of State for Finance Santosh Kumar Gangwar told Parliament that the income tax department detected undisclosed income worth Rs 13,715 crore in fiscal year 2016-17. Income tax raids at 5,102 places yielded undeclared income of Rs 15,496 crore, the minister said in a written reply to Parliament. These figures are confusing and somewhat contradictory.

Both the government and its tax department will have to work overtime and dig out black money from these accounts to salvage the idea of demonetisation. If the exercise to weed out black money from bank accounts fails to deliver, history would remember demonetisation as a state-sponsored once-in-a-life time opportunity given to crooks to convert their black money into white and get away with lighter penalties.

The math of falling surplus transfer to Centre

Radhika Merwin
The Business Line
Published on August 31, 2017

Lower income and transfer to contingency fund are key reasons

Mumbai, August 30: Given that the RBI’s surplus transferred to the Centre last year constituted about a fourth of the non-tax revenues in FY17, its tightfistedness this year is going to cost the Centre dear.

Recently, the RBI had taken the market by surprise when it stated that it would transfer just ₹30,659 crore of surplus to the Centre this year, half of the ₹65,876 crore it did in the previous year.

Why has it robbed the Centre of nearly ₹35,000 crore of revenues this year? The RBI’s annual report for 2016-17 reveals that lower income, higher expenses and a transfer of ₹13,140 crore to its contingency fund are responsible for the lower dole out.

Let us consider income first. From ₹80,870 crore in 2015-16, the RBI’s income has fallen 23 per cent to ₹61,818 crore in 2016-17.

The main reason for the sharp fall in income was the net interest on liquidity adjustment facility (LAF) operations, which slipped to a negative ₹17,426 crore in 2016-17 from a positive ₹506 crore in 2015-16.

The Centre’s demonetisation move left banks flush with deposits with no viable credit opportunities to deploy them. Banks have been using the excess funds by lending to the RBI through the reverse repo option under the LAF window and investing in safe government securities.

While banks have been earning tidy interest on such surplus funds lent to the RBI, the latter has had to bear the cost. The interest paid by the RBI in 2016-17 has thus eaten into its income.

On the expenditure front, the cost of printing of notes has more than doubled to ₹7,965 crore in 2016-17, thanks to the Centre’s demonetisation move, from ₹3,421 crore in 2015-16.

The 33-odd per cent dip in the RBI’s net income for 2016-17 has, no doubt, led to the lower transfer of surplus to the Centre this year. But there’s another twist in the tale.

Re-building its kitty?

The RBI has chosen to be prudent this year and has transferred about ₹13,000 crore of surplus to its contingency fund; accounting for 21 per cent of income.

Additions to this fund had ceased since 2013-14 and the entire surplus in the RBI’s coffers was being transferred to the Centre until last year.

The RBI had been contributing a chunk of its profit to the contingency fund up to 2012-13. Between 2010-11 and 2012-13, the RBI had set aside 32-45 per cent of its gross income to this fund, with the intention of mitigating risks from unforeseen exigencies.

After a gap of three years, the RBI has once again started building its kitty. While the RBI’s conservative stance is welcome, it has left the Centre with less wiggle room to manage its fiscal deficit target.

Forced PSU bank mergers won’t work

Subir Roy
The Business Line
Published on August 30, 2017

Such mergers only delay onset of the crisis. A culture of professionalism can help banks come out of the current mess

An architecture has emerged for the Government to tackle the massive bad loan problem of state-owned banks. There is now a Banks Board Bureau to pick new top managers for banks and act as a buffer between banks and the Government to ensure proper governance.

There is also an insolvency and bankruptcy code which is a single legal window, so to speak, to speed up the process for resolution of bad debts. Though these measure will take time to show results, they can be termed the good part of the architecture.

The indifferent part is the Government empowering itself to ask the RBI to direct banks to initiate proceedings under the code and also form committees to give banks directions in this regard.

Since bank managements will move slowly on their own to resolve bad debts for fear of future scrutiny, this move makes sense but it also lays the ground for the government to pick and choose between bad debts and the promoters behind them. So this can be termed the indifferent part of the architecture.

Merging concerns

But where the Government is going conspicuously slow is in recapitalising public sector banks whose net worth is severely eroded. Witness the minuscule ₹10,000 crore provided for this in the latest budget when the NPA load goes into lakhs of crores.

Instead, it has decided to move forward with the merger of banks, reducing their total number by almost half to around a dozen. For this the government has approved a mechanism which will both oversee and speed up things. This is the bad part of the architecture.

Mergers are being touted as the way to have only big strong banks which will then have enough depth in their balance sheets to take care of future provisioning needs and also keep lending big to achieve rapid economic growth. But by simply merging a weak bank with a strong bank you will merely create a bigger bank which will be weaker than what it was in its earlier avatar.

We need go no further than to look at the immediate fallout of the merger of five associate banks of the State Bank of India with itself. The associate banks made a loss of ₹5,792 crore for the March quarter of 2016-17 and ₹10,243 crore for the entire year.

This resulted in the consolidated net profit of SBI going down to a mere ₹241 crore when the stand alone net profit was ₹10,484 crore. The consolidated net profit will be a fraction of the outgo on account of dividend. Hence dividend, which props up the government’s fisc, will have to be paid out of reserves.

The shock delivered by these number caused the SBI share to tank by 4.6 per cent. Finance minister Arun Jaitley had earlier expressed confidence that the merger would make the bank a global player!

Systemic risks

In fact, the experience since the financial crisis of 2008 suggests that governments should have on their hands as small a number of entities as possible which are too big to fail as they are systemically important.

This puts the responsibility over them ultimately in the hands of the regulator whose job it is to ensure systemic stability.

On the other hand, it is small banks with strong local roots which lend to small and medium enterprises with good knowledge of the world they operate in that have a lot going for themselves.

Through the small units and startups they fund, smaller banks are the creators of jobs and wealth. In fact, in today’s world of banking, it is the small that is beautiful because they have their feet firmly planted in the ground and are thereby robust on their own terms.

Merging banks so as not to have to recapitalise them in a big way will merely postpone the need to adopt a real solution and probably make things worse when it will not be possible to hide any more behind stopgap measures.

The contrast between mergers based on the basis of felt commercial needs as opposed to simply doing so in order to show that one is doing something is illustrated by the two stages which the State Bank of India group has gone through. Earlier an associate bank was merged with the parent when it was considered to be weak.

This led to the merger of State Bank of Bikaner and Jaipur and State Bank of Indore with the parent. But the subsequent merger of the five remaining associate banks is a blanket action which is justified only on the ground that it is better to have fewer state owned banks than more. It is no wonder that post the mass merger, the merged entity is seen to be weaker than its earlier stand alone self.

Professional management

If merger, per se, is not a solution then what is? Obviously, given the present dead weight of non-performing large corporate loans, there is a future for public sector banks only if they are run by professional managers who can take a view on a project and other risks at stake before making a commitment. On the other hand, what had happened was politically directed lending for projects whose costs had sometimes been gold plated (overstated) and with inadequate assessment and coverage of the risks at stake.

Crony capitalism and public sector bank bad debts are two sides of the same coin. Once the top managers chosen by the Banks Board Bureau settle down and start changing the managerial culture, professionalism can emerge in an ambience of improved governance.

But that can happen without mergers! The right policy now would have been to simply continue chasing bad debts armed with the powers conferred by the bankruptcy and insolvency code and not engage in forced mergers. These are as dubious as forced marriages.

The writer is a senior journalist

Deadline for Aadhaar will be extended till
December 31, 2017: Govt Supreme court

The Press Trust of India
Published on August 30, 2017

New Delhi, August 30 (PTI): The Centre today told the Supreme Court that they would extend till December 31, the deadline to furnish Aadhaar for availing the benefits of various social welfare schemes.

Attorney General K K Venugopal made the submission that the current deadline of September 30 would be extended to December end before a bench headed by Chief Justice Dipak Misra after some of the petitioners, who had challenged the government’s move to make Aadhaar mandatory for availing the benefits of these schemes, mentioned the matter before the court.

Senior advocate Shyam Divan, appearing for petitioners, told the apex court that a nine-judge constitution bench had recently declared right to privacy a fundamental right and now a batch of Aadhaar-related petitions should be taken up for hearing by an appropriate bench.

When he referred to the September 30 deadline to give Aadhaar for availing these benefits, the Attorney General said the government would extend it to December 31.

“We (Centre) have said we will extend it to December 31,” Venugopal told the bench which also comprised Justices Amitava Roy and A M Khanwilkar.

The bench thereafter said that the batch of petitions on the Aadhaar issue would be taken up for hearing in the first week of November.

“Urgency is not there. The Attorney General is saying that it will be extended. It (petitions) will be listed in the first week of November,” the bench said.

Divan referred to the privacy judgement penned by Justice R F Nariman’s separate but concurring verdict and contended that the judge had said that matters relating to Aadhaar be sent back for adjudication on merits by a bench of three judges.

However, the Attorney General requested the bench that these matters be sent for adjudication by a five-judge bench, considering the importance of the issues involved in it.

Venugopal said since the deadline would be extended till December 31, there was no urgency in hearing the matter and it could be taken up in November.

Divan did not oppose Venugopal’s submission and said he has no objection if the matter would be heard in November.

Initially, a three-judge bench had on July 7 said that all issues arising out of Aadhaar should finally be decided by a larger bench.

On July 12, the apex court had said that its five-judge Constitution Bench will hear the matters relating to Aadhaar, including the aspect of right to privacy.

Thereafter, the five-judge bench had constituted a nine- judge bench to decide on whether the right to privacy could be declared a fundamental right.

In a historic judgement on August 24, a nine-judge constitution bench had declared the right to privacy as a fundamental right saying it is protected as an intrinsic part of the right to life and personal liberty under Article 21 and as a part of the freedoms guaranteed by Part III of the Constitution.

Various petitions have been filed in the apex court challenging the government’s move making Aadhaar mandatory for availing benefits of various social welfare schemes.

The apex court had earlier passed a slew of orders asking the government and its agencies not to make Aadhaar mandatory for extending benefits of their welfare schemes.

It, however, had allowed the Centre to seek Aadhaar card voluntarily from citizens for extending benefits of schemes like the LPG subsidy, Jan Dhan scheme and public distribution system.

Economic growth likely to be consumption-led

The Business Line
Published on August 31, 2017

Strengthening of global demand
will support domestic economy: RBI

Kolkata, August 30: The Reserve Bank of India, in its Annual Report 2016-17, has said strengthening external demand will help support the economy, even while favourable domestic conditions are expected to quicken the pace of overall economic activity during the year.

Global growth is gaining traction in 2017-18, with the recovery driven primarily by a cyclical upturn in investment, manufacturing and trade, the report said.

While growth in the domestic economy is expected to be consumption-led, remonetisation is expected to enable a pick-up in discretionary consumer spending.

On the whole, real gross value added (GVA) growth is expected to rise to 7.3 per cent in 2017-18, from 6.6 per cent in 2016-17, the report said.

“Government spending continues to be robust, cushioning the impact of a slowdown in other constituents. Furthermore, reductions in bank lending rates post demonetisation should support investment demand,” the RBI said.

However, global political risks and rising input costs may have an impact on profitability of firms, pulling down the overall GVA growth. The twin balance sheet problem — over-leveraged corporate sector and stressed banking sector — could delay the revival in private investment demand, the report added.


The headline inflation is forecast to be in the range of 2-3.5 per cent in the first half of 2017-18 and 3.5-4.5 per cent in the second half.

The implementation of GST is not likely to have a material impact on headline inflation in the near term, the report observed. Headline inflation remained around 2.2 per cent in the first quarter of 2017-18 and declined to a historic low of 1.5 per cent in June 2017, primarily on the back of disinflation in food.

However, moving forward, some uptick in overall food inflation could be expected as “unfavourable base effects set in from August 2017”, the report pointed out.

While in the medium term, GST implementation is expected to bring about tax buoyancy and growth, near-term uncertainties with regard to revenue mobilisation impacting fiscal consolidation at both the Central and State levels could not be ruled out.

Public credit register

The RBI is looking to constitute a high-level task force to suggest a roadmap for developing a transparent and comprehensive public credit register (PCR).

The task force, comprising experts as well as major stakeholders, will review the current availability of information on credit in India and suggest a roadmap, including priority areas for developing a ‘near-real-time PCR’ for India, the annual report said.

The PCR would help in enhancing efficiency of the credit market, increase financial inclusion, improve ease of doing business and help control delinquencies.

“To begin with, by incorporating unique identifiers for the borrowers (Aadhaar for individuals and Corporate Identification Number for companies) the Reserve Bank’s Basic Statistical Returns data set could be quickly transformed into a PCR covering customers of commercial banks, which could then be expanded to cover other financial institutions in India,” the report said.

Privacy: A very 20th century idea. Really?

Jinoy Jose P
The Business Line
Published on August 30, 2017

Let me guess; is this about the Supreme Court ruling?

Not exactly. Reams have been written on the SC’s historic ruling that privacy is a fundamental right guaranteed under the Constitution. But a more interesting issue is the way privacy is defined today, much like the proverbial blind men who described the elephant. Companies have their own versions of privacy; activists, policymakers, data experts, individuals have their own versions of the fundamental right.

Give me an example.

It was once unimaginable for people to merrily post their photos and private information on platforms. There were all kinds of scares around ‘morphing’ photos and such misuse. Enter Facebook in 2004, and the game has changed. Granted, Google’s Orkut came earlier, but it was Facebook’s cool algorithms, blending behavioural sciences with technology, that induced people to shed shame and voluntarily reveal personal information that was once considered a no-no.

Yes. Worries over ‘online privacy’ subsided.

Behavioural scientist Alessandro Acquisti of Carnegie Mellon University wrote an interesting article in the IEE Security & Privacy magazine in 2009. ‘Nudging Privacy: The Behavioural Economics of Personal Information’ said: In 2007, a Facebook group came under media attention: 30 Reasons Girls Should Call It a Night counted “nearly 150,000 members and a collection of nearly 5,000 photos of young women passed out on the pavement, collapsed in shrubbery, peeing in bushes, and vomiting in toilets (or on themselves).” Most of the subjects had uploaded the photos themselves. This shows how things have changed in a few years. Today, some 2 billion people are on Facebook, disseminating personal data that can be mined by third parties.

But there are checks, right?

Yes. And there should be. The point is how the idea has changed over time, thanks to technology. But with it came possibilities (read: threats) of data misuse and breach. Yes, the world has shrunk for good to become a ‘Global Village’ of information (even if not in the way Canadian thinker Marshall McLuhan imagined it), but in this process it placed curbs on individual liberty, and companies and governments have smelled an opportunity here.

Like what?

While companies saw an opportunity to know their customers and make them buy more, governments realised these disclosures help them know their citizens better. That was just the start; soon everyone got greedy. Companies started gleaning more personal data from user profiles, and governments demanded more information from citizens by introducing regulations that punched holes in individual privacy, triggering a global debate on surveillance. Activists wonder if such intrusions are signs of the Big Brother state George Orwell had predicted.

Is the Aadhaar a case in point?

Yes. While the Government says the biometrics-aided personal identification number can help check corruption and tax evasion, and ensure better delivery of welfare schemes, rights activists say it is a breach of personal liberty, and making it mandatory for availing government services can imperil privacy and choice. The latest Supreme Court verdict on privacy can also mean the Government cannot impose Aadhaar-like systems on the public.

A complex issue, I reckon.

It is, yes. The most important aspect of the privacy issue is that it places the individual at the centre of it all. The state or any other party comes only next. So, when companies say privacy is a very 20th Century idea (as an IT giant claimed in a study a few years ago) and ‘global’ citizens cannot demand ‘information liberties’ beyond a level, they must know that a world without the ‘right to choose’ will be a disaster. The very idea of a free market rests on the consumer’s right (and ability) to make informed choices about products and services.

Source: Internet News papers and Anupsen articles