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RBI Says 99.3% of Money Came back During Demonetization | Banking News Dated 30th August 2018

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Banking News: August 30, 2018


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Almost all of demonetised currency  came back; 99.3% returned, says RBI


Almost all of demonetised currency
came back; 99.3% returned, says RBI

Abhijit Lele
The Business Standard
Published on August 30, 2018


The total value of SBNs returned to banks is
Rs 15.31 lakh crore, RBI said in its 2017-18 annual report

Mumbai, August 29: Reserve Bank of India has completed the task of processing and verification of the large value notes (Rs 500, Rs 1,000) which were withdrawn from circulation following their demonetisation in November 2016.

The total value of banned notes, which RBI refers to as Specified Bank Notes (SBNs), in circulation as on 8 November 2016, post verification and reconciliation, was Rs 15.41 lakh crore.


As many as 99.3 per cent of the demonetised notes have been returned, the Reserve Bank of India said in its annual report.

The total value of SBNs returned to banks is Rs 15.31 lakh crore, RBI said in its 2017-18 annual report.

An amount of Rs 10,720 thousand crore in demonetised notes were not returned, as of 30 June 2018. They formed part of the liability head ‘Notes issued’, and have been removed from the balance of ‘Notes issued’ and transferred to a specific head created for the purpose called ‘Other Liabilities and Provisions’.

All future payments of the exchange value of SBNs to eligible tenderers, under the rules framed by the Government of India, will be made out of the specific head,

The process of verifying banned notes involved working in two shifts under strenuous conditions, maintaining detailed records and planning effectively without compromising on other functions of currency management. The task of processing SBNs was achieved with the co-ordinated efforts put in by the workforce of the Issue Department of the Reserve Bank, it added.

The processing capacity was augmented by resorting to night shifts (along with day shifts), working for 6 days a week, using 8 additional machines available with commercial banks and taking 7 machines on lease from vendors.

The matter relating to the exchange of SBNs held by certain District Central Cooperative Banks (DCCBs), which could not be accepted by RBI under extant legal provisions, is pending before the Court. The payment of the value of such SBNs is subject to the orders of the Court.

The value of banknotes in circulation increased by 37.7 per cent over the year to Rs 18.03 lakh crore as at end-March 2018. The volume of banknotes, however, increased by 2.1 per cent.

In value terms, the share of Rs 500 and Rs 2000 banknotes, which had together accounted for 72.7 per cent of the total value of banknotes in circulation at end-March 2017, increased to 80.2 per cent as at end-March 2018.

The focus of currency management in 2017-18 remained on remonetisation, processing and reconciliation of SBNs received at the Reserve Bank from circulation.

Ceaseless efforts towards remonetisation continued during the year which saw the issuance of banknotes of Rs 10 and Rs 50 under the new series and introduction of Rs 200, a new denomination.


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India’s central bank just proved
demonetisation was for nothing

Nupur Anand
The Quartz Online
Published on August 29, 2018


The suspense is over now.

In the months following the November 2016 demonetisation, Indians deposited over 99% of banned currency notes in various banks, according to the Reserve Bank of India’s (RBI) annual report released today (Aug. 29).

On Nov. 08, 2016, when prime minister Narendra Modi declared the Rs 500 and Rs 1,000 invalid from the next day, these two notes accounted for Rs 15.44 lakh crore circulating in the Indian economy, or 86% of the total by value. So according to the RBI report, Rs 15.31 lakh crore returned to the banking regulator. This is clearly far higher than the up to Rs 10 lakh crore the government expected.

The withdrawal of these notes had sparked an acute shortage of cash in India and had a deleterious effect on economic growth. The bad hangover sustained for months as businesses were hit and over a million people lost their jobs.

Success or failure?

The Modi government had listed curbing unaccounted wealth as the primary intention of the move, along with making India a less cash-based economy.

However, the goal posts kept shifting in the weeks and months since.

Meanwhile, India’s love affair with cash has returned.

Immediately after the note ban, digital transactions saw a spike due to the acute cash shortage. However, soon normalcy returned. “The value of banknotes in circulation increased by 37.7% over the year to Rs 18.03 lakh crore as at end-March 2018,” the latest RBI report said.

Experts point out that even though electronic transactions have increased, they haven’t risen at a pace the government expected.

“None of the original objectives have been met. Some of the other objectives laid out fighting terrorism and corruption, even that has clearly not been met,” said Jayati Ghosh, economics professor at New Delhi’s Jawaharlal Nehru University. “Instead, what it did was give a body blow to the informal economic activity and I don’t think that the country has still fully recovered from it.”


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Value of banknotes in circulation increases
by 37.7% to Rs 18.04 Lakh Crore in FY18

Anup Roy
The Business Standard
Published on August 30, 2018


The share of newly introduced Rs 200 in the
total value in circulation was 2.1 per cent

Mumbai, August 29:  The value of banknotes in circulation increased by 37.7 per cent over the year to Rs 18.04 lakh crore as of end-March, but the volume (in number of pieces) increased by only 2.1 per cent, as emphasis was given on printing notes with higher values.

Value of banknotes in circulation increases by 37.7% to Rs 18.04 lakh crore in FY18. In value terms, the share of Rs 500 and Rs 2,000, which had together accounted for 72.7 per cent of the total value of banknotes in circulation as of end-March 2017, increased to 80.2 per cent. The share of newly introduced Rs 200 in the total value in circulation was 2.1 per cent.

In volume terms, Rs 10 and Rs 100 constituted 51.6 per cent of total banknotes in circulation now as compared to 62 per cent at the end of March 2017. The falling share of smaller-value notes may explain getting change is difficult these days.


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Demonetisation achieved its objectives
 quite substantially: Finance Ministry

The Business Standard
Published on August 30, 2018


Mumbai, August 29 (PTI): The government on Tuesday said demonetisation of high-value currency notes in November 2016 achieved the objectives "quite substantially", even as the RBI report outlined that 99.3 per cent of junked notes came back to banks.

Talking to reporters here, Economic Affairs Secretary S C Garg said objectives of the note ban, like checking black money, terror financing, promoting digital transaction and weeding out fake currency notes have been achieved.

"I think demonetisation has achieved its objective quite substantially," he said in reply to a question in this regard.

According to the RBI's annual report released today, as much as 99.3 per cent of the junked Rs 500 and Rs 1,000 notes have returned to the banking system.


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Despite RBI claims, brace for more fake note discoveries – Check what SBI report has to say

The Financial Express
Published on August 30, 2018


Mumbai, August 29 (PTI):  Despite RBI claims that the newly introduced bills are more secure, currency counterfeiters seem to have found a way around it and we should brace for more fake note discoveries, a SBI report said today. “The promise of RBI that new currency notes of Rs 200 and Rs 500 (post demonetisation) are more secure and less prone to counterfeit is not entirely correct,” SBI’s house economists said in a report released after the RBI came out with its annual report. It said there was a “noticeable increase” in counterfeit notes detected in the denomination of new Rs 500 (up by 4,178 per cent) and Rs 2,000 (by 2,710 per cent), as per the data shared in the annual report.

It added that given the trend, “it is expected that the number of counterfeit notes in the denomination of Rs 500 (new) and Rs 2,000 may increase further and RBI/banks/public should pay more attention to that”. The annual report said almost all the 500 and 1,000 currency notes that were made illegal on November 8, 2016 have returned to the banking system, prompting the opposition to question efficacy of demonetisation in curbing black money.

Banks received Rs 15.31 lakh crore, or 99.3 per cent, of the Rs 15.41 lakh crore worth Rs 500 and Rs 1,000 notes in circulation on November 8, 2016, when the note ban was announced, it said. This meant just Rs 10,720 crore of the junked currency did not return to the banking system as against initial estimates of about Rs 3 lakh crore, as they may have been stashed away illegally to avoid tax.

The SBI report said that demonetisation and the introduction of the new notes has also aided a sharp decline in counterfeit notes by 31.4 per cent to 5.23 lakh pieces in fiscal year 2017-18. It also noted the positive impact on revenues because of the formalisation in the economy started due to the demonetisation and added that at least Rs 30,000 crore will come from the widened tax base.

“If we assume a trend 30 per cent growth over FY18 numbers then at least around 2 crore new tax payers will file their return in current fiscal. Assuming that 75 per cent of such have filed with zero income and only 25 per cent paying a minimal Rs 5,000 tax per month then Government will earn extra tax revenue of around Rs 300 billion over and above the trend estimates,” it said.

It added that this is the minimum revenue the government will garner as most of the newly added taxpayers in the system are from the higher tax brackets. The SBI economists also welcomed the shift in RBI communication strategies, noting that there is more focus on rigorous research now from the earlier strategy of public speeches. Speeches by RBI’s top management more than halved to 22 in 2017 and stand at only 10 for this year, it said, adding that there have been 12 ‘Mint Street Memos’ (research papers on contemporary topics) since its launch last August.


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Rupee hits a new all-time low
of 70.52 against US dollar

The Business Today
Published on August 30, 2018


Indian rupee today dived to a new all-time low of 70.52 against the US dollar. The fall in its value comes on the back of strong US consumer confidence data.

Mumbai, August 29:  The Indian rupee today dived to a new all-time low of 70.52 against the US dollar. The fall in the value of rupee comes on the back of strong US consumer confidence data which rose to its highest level since October 2000. After Thailand's baht, the Indian rupee is the worst performing currency in Asia.

Credit rating agency Moody's today said that higher-than-budgeted oil prices will add to short-term fiscal pressures pointing to a higher risk that the government's deficit objective will not be met.

"Oil prices at current levels will raise expenditures and add to existing pressures on the fiscal position stemming from the lowering of goods and services tax (GST) rates on a range of consumer goods and a tax cut for small businesses as well as the relatively high minimum support prices (MSPs) set for this year," Moody's said.

According to latest data released by the trade ministry, India's trade deficit hit a 5-year high of $18.02 billion in July, up 8.5 per cent month-on-month. This is mainly because of surging oil imports, which grew by over 57 per cent year-on-year to $12.35 billion. While total imports jumped 28.81 per cent to $43.79 billion, exports only went up by 14.32 per cent to $25.77 billion (year-on-year).

The widening trade deficit against the backdrop of growing global uncertainty is expected to keep exerting pressure on the rupee in the near term. 

The far-from-optimistic outlook on oil prices makes matters worse. Unless our exports pick up substantially, this may worsen the deficit even further. That will make the rupee slide further.


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Diesel Hits A New High,
Petrol Prices Also Climb

The NDTV Profit
Published on August 29, 2018


New Delhi, August 29: Diesel prices hit a new high in four metros across the country on Wednesday. The rates of both petrol and diesel were marginally hiked today for a fourth straight day by Oil Marketing Companies (OMCs).

Diesel can be bought today at Rs. 69.75 per litre in Delhi. Diesel can be purchased at Rs. 74.05 per litre in Mumbai, Rs. 72.60 per litre in Kolkata and Rs. 73.69 per litre in Chennai, according to daily price notification issued by state-owned oil firms.

Petrol is selling at a price of Rs. 78.18 per litre in Delhi today. In Mumbai, petrol is retailing at Rs. 85.60 per litre in Mumbai. Petrol is priced at Rs. 81.11 per litre in Kolkata and Rs. 81.22 per litre in Chennai. The revised rates are applicable from 6 am on August 29.

The hike in rates of diesel is significant as it is mostly used in transportation of food and agricultural products and an increase in its price may lead to higher inflation. The surge in fuel prices is largely attributed to the recent rise in crude oil cost and the high excise duty levied on transportation fuel in the country, reported news agency IANS.

Mumbai has the highest VAT (Value Added Tax) of 39.12 per cent on petrol, while Telangana levies highest VAT of 26 per cent on diesel.  Delhi charges a VAT of 27 per cent on petrol and 17.24 per cent on diesel. The total tax incidence on petrol comes to 45-50 per cent and on diesel, it is 35-40 per cent.

Petrol and diesel will not come under the purview of Goods and Services Tax (GST) in the immediate future as neither the Central government nor any of the states is in favour on fears of heavy revenue loss.

Globally, oil markets were stable on Wednesday, buoyed by falling supplies from Iran ahead of US sanctions but held in check by rising production outside the Organization of the Petroleum Exporting Countries. (With inputs from agencies)


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A US court report names Nirav Modi’s
American firms in India’s biggest banking scam

Nupur Anand
The Quartz Online
Published on August 28, 2018


The biggest fraud in Indian banking history has links to US firms.

In February, the Punjab National Bank, the country’s second biggest state lender, reported that diamantaires Nirav Modi and Mehul Choksi had siphoned nearly $2 billion (over Rs13,000 crore) from its coffers.

Three bankrupt US companies owned by Modi—Firestar Diamond, A Jaffe, and Fantasy—are now proven to be directly involved in the fraud.

“…in addition to conducting their stated wholesale business, the debtors (the three firms) conducted transactions totalling hundreds of millions of dollars with the foreign shell companies alleged to have been created and secretly controlled by Modi for the purpose of furthering the fraudulent banking scheme,” John J Carney, an examiner appointed by the US bankruptcy court, has concluded in an over 100-page report submitted last week.

Earlier, these firms had denied any involvement in the PNB fraud case. They have been selling jewellery to major American retailers, including Costco Wholesale, JC Penny, Army/Navy Stores, Macy’s, and Zale.

On Feb. 26, two weeks after the fraud came to light, Modi’s three firms filed for bankruptcy protection through a voluntary petition, citing supply-chain disruption. The enforcement directorate in India had swung into action, freezing Modi’s assets in the country, and this had hit his global businesses.

The rot runs deep

Besides their involvement in the PNB scam, Carney has unearthed other irregularities, too, at these firms.

“…the examiner has identified numerous indicia of fraud involving the debtors’ financial reporting, inventory valuation, and operational practices surrounding these transactions,” the report said. It also notes that it is highly likely that the top management at these firms—Mihir Bhansali, CEO of Firestar and A Jaffe, and Ajay Gandhi, CFO of Firestar—was involved in perpetuating the fraud.

In May, the Central Bureau of Investigation (CBI) filed charges against Modi, Choksi, and some of their employees for conspiring against PNB. Efforts are on to bring back Modi who’s been on the run since the CBI filed a case on Jan. 31. The country’s top probe agency has already moved a request in the UK for this. Modi and Choksi have refused to return citing political persecution.

Now these latest findings may strengthen India’s case.


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Number of banking outlets in villages
drops amid financial inclusion push

Nikhat Hetavkar
The Business Standard
Published on August 30, 2018


These numbers echo what the industry says:
Feasibility of operations in rural areas is low

Mumbai, August 29:  The Centre has been pushing for financial inclusion through its various schemes, but the numbers show a lot remains to be done. The total number of banking outlets in villages, including branches and business correspondents, fell over the previous year.

These numbers echo what the industry says: Feasibility of operations in rural areas is low. This is because pricing models are not taking into account the higher costs and lower volumes involved in serving rural areas.

Number of banking outlets in villages drops amid financial inclusion push

This has resulted in higher concentration of banking correspondents in urban areas, which detracts from their mandate of financial inclusion. The same issue applies to the ATM sector, where total numbers of ATMs have dropped marginally over the previous year.


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Prepare a list of the public sector banks
that can be merged: Govt asks RBI

The Business Standard
Published on August 30, 2018


In a meeting this month, finance ministry officials also asked the Reserve Bank of India to suggest a time frame for the consolidation.

New Delhi, August 29 (Bloomberg): The government has asked its central bank to prepare a list of candidates for merger among 21 government-controlled lenders as it seeks to strengthen a banking system laden with bad debt, people familiar with the matter said.

In a meeting this month, finance ministry officials also asked the Reserve Bank of India to suggest a time frame for the consolidation, the people said, asking not be named as the information isn’t public. The move is aimed at creating fewer, better-capitalized lenders and improving regulatory oversight, they said.

India has been battling for years to clean up its banks, which have the highest bad-loan ratio after Italy among the world’s 10 largest economies. Government-controlled lenders are estimated to hold 90 percent of non-performing loans, and 11 of the 21 are operating under an emergency program, supervised by the RBI, which restricts new lending.

A phone call to a finance ministry spokesman and an email to the RBI seeking comment weren’t immediately answered.

State-backed lenders need to consolidate to avoid losing more market share to peers in the private sector, the outgoing chairman of Bank of Baroda Ravi Venkatesan said last month.

Almost 70 percent of new deposits went to private banks in the latest fiscal year and they’re estimated to have cornered nearly 80 percent of incremental loans through 2020 as mounting bad debt erodes capital and constrains lending at state banks.

Weak balance sheets and laws that require the state to hold at least 51 percent of their shares have left public lenders dependent on the government for new capital.


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Banks fear more losses as stressed power assets
are set to hit bankruptcy courts in 15 days

Beena Parmar
The Moneycontrol News
Published on August 29, 2018


Allahabad HC judgment is also likely to impact further investments in power sector, which witnessed a significant capacity expansion during the past 6-7 years

Mumbai, August 29:  Bankers fear more loan losses as they prepare to take stressed power assets for resolution under insolvency and bankruptcy code (IBC) in the next 15 days.

After the Allahabad High Court judgment on August 27 declining interim relief to power companies from escaping insolvency proceedings, bankers fear more hair-cuts on their loans. Provisions could also see a minor increase once the assets are referred to the National Company Law Tribunal (NCLT).

Hair-cut is a technical term for losses made due to non-recovery of any part of a loan while provision is the capital set aside towards potential loan losses or non-performing assets (NPAs) by lenders. The provision is written back in case of the loan recovery.

In and out of bankruptcy

Almost 34 coal-based thermal power plants with an exposure of about Rs 1.77 lakh crore are under stress as per the government's Standing Committee report. Of these State Bank of India (SBI) has already referred about 16 assets to insolvency courts while about 7-8 accounts worth Rs 17,000 crore are in the process of a resolution under the Samadhan scheme outside of the NCLTs.

Lenders led by SBI are working on resolution plans for companies including KSK Mahanadi, Prayagraj Power, JP Power Venture, SKS Power, Jhabua Power and Coastal Energen.

Rajnish Kumar, Chairman of SBI said four are approved by SBI and the remaining four would be approved in the next two days.

Banks have not estimated the entire impact, but if approved, the plans will require at least a 50 percent haircut on an average. Under insolvency, the haircuts would be much higher. Additionally, lenders have made provisions of approximately 25-35 percent for these power assets.

A senior public sector lender said those stressed power projects taken to the NCLT by lenders, will see a significantly lower liquidation value.  Provisions may also increase after being admitted to the NCLT.

The SBI chairman also mentioned that there is always an option of withdrawing it out of NCLT with the adequate consensus of lenders provided there is a better resolution.

RBI deadline

As per the February 12 circular, the RBI had set a 180-day timeline starting March 1 for resolution of large corporate loan defaults of over Rs 2,000 crore, failing which banks have to refer these cases for insolvency proceedings.

Once under NCLT the management of the companies lose control to the insolvency resolution professionals and a committee of creditors (CoC) decide on the new owners depending on the buyers and resolution process. In case the resolution process fails, the company gets liquidated.

The stressed companies such as Essar Power, Korba West Power Co. Ltd, Ind-Barath Energy (Utkal), Lanco Anpara, Jindal India Thermal and Sravant Energy among others will be filed for insolvency in the next month.

Rajkiran Rai G, CEO and Managing Director of Union Bank of India, said, “We have not factored in the court judgment, it will not make much difference. The resolution process will take its own course, the judgment does not make a difference.”

According to him, the issue of how many accounts will go the NCLT will be discussed because there are 15 more days to decide. Union Bank’s exposure to the power sector stands at about Rs 6,000 crore to power.

Power sector stress

The Allahabad HC judgment is also likely to impact further investments in the Indian power sector, which witnessed a significant capacity expansion during the past 6-7 years.

Given that the projects face critical issues, getting buyers and investors for these stressed assets would be very difficult, unless the underlying issues -- coal supply and power purchase agreements (PPAs) -- are addressed.

Some major issues for the creation of stress in the power sector include non-availability of regular fuel supply arrangements, lack of enough PPAs, projects set up without linkage, cancellation of coal blocks, delay in project implementation leading to higher costs and inability of the promoter to infuse equity and working capital.


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Uncertain jobs data, strained agriculture, lower investments: Is Indian economy really looking up?

The Financial Express
Published on August 30, 2018


In the same period last year, India clocked a three-year-low GDP growth rate of 5.7%, majorly due to massive de-stocking ahead of the implementation of the Goods and Services Tax (GST).

Mumbai, August 29: There is a definite indication of a higher GDP growth in the first quarter of the financial year 2018-19 as compared to the same period last year but the key indicators are likely to display a better picture as they are pitted against a different year which witnessed slowdown due to disruptions caused by the GST before sharp rebound, a report has observed.

In the same period last year, India clocked a three-year-low GDP growth rate of 5.7%, majorly due to massive de-stocking ahead of the implementation of the Goods and Services Tax (GST). Rating and financial institutions are expecting the GDP growth rate in the April-June quarter of the current financial year to be between 7.5% to 7.7.

“FY18 was different in terms of the operating environment as GST had caused some degree of upheaval with the growth pattern moving into a trough before rising sharply. This was witnessed in GDP growth as well as industrial growth which in turn will tend to display a better picture this year,” a report by Care Ratings said.

“For the current financial year so far, there are mixed signals on the state of the real economy,” the report said. While praising the performance of FDI inflows and better trade numbers, Care Ratings expressed worry over indications of unclear employment scenario, strained agriculture, and lower investments.

“The employment scenario appears unclear given the different contrary indications given by the EPFO and CMIE data,” the report said. On investments, it said that while the picture on domestic investment intentions is still a bit nebulous, the FDI flows have been more positive and definite with growth of 22% in the first quarter from $10.4 billion to $12.7 billion.

Source: Internet Newspapers and Anupsen articles

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