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Banking News 19.01.2017

House panel criticises RBI governor for

inability to answer demonetisation questions


The Economic Times

Published on January 19, 2017



New Delhi, January 18: Members of the Parliamentary Standing Committee on Finance on Wednesday criticised Reserve Bank of India Governor Urjit Patel for his inability to answer queries related to demonetisation. "Patel was unable to tell us how much money has come back to the banks," said Saugata Roy, TMC MP. "The governor was unable to tell us that how much old currency has come into the banks," added Saugata Roy.


Sources also quoted the RBI governor, as telling the Parliamentary Standing Committee on Finance that Rs 9.2 lakh crore in new currency has been introduced into the system. Patel briefed the parliamentary panel about demonetisation and its impact on the economy and the steps taken by the central bank to deal with the cash crunch.


Besides, representatives of the Finance Ministry, including from the Department of Economic Affairs, Financial Services and Revenue, briefed the Standing Committee on Finance headed by former Union Minister and senior Congress leader M. Veerappa Moily.


Representatives of Indian Banks Association (IBA), State Bank of India (SBI), Punjab National Bank (PNB) and Oriental Bank of Commerce (OBC) were also present in the meeting. It maybe recalled that the RBI had earlier given a seven-page reply to the questions raised by the committee. It had then said that it had received advisory instructions from the government to consider the demonetisation of Rs.500 and Rs.1,000 notes.


According to the RBI, the government wanted it to consider demonetisation of high value currencies "to mitigate the triple problems of counterfeiting, terrorist financing and black money" on 7 November. The central board took a decision on this and the government announced the demonetisation on 8 November. The RBI had cleared the introduction of new Rs. 2,000 notes in May 2016 and that the central board had not discussed the ban of Rs. 500 and Rs. 1,000 notes in its meetings in May, July or August.


The entire exercise of demonetisation has been mired in secrecy as neither the RBI and the government has given any details on when the decision was taken and who were involved in the process. The briefing by Patel and other bureaucrats before the Parliamentary panel assumes significance in this context. The RBI Governor is also scheduled to appear before the Public Accounts Committee of Parliament on the same issue on January 20.


Prime Minister Narendra Modi had announced the demonetisation of old Rs. 500 and Rs. 1,000 notes on November 8 last year. Following the decision, the RBI had put restrictions on withdrawal of cash from ATMs as well as from banks to deal with shortage of new high denomination currency notes. This led to long queues at ATMs and bank branches. The cash situation has improved gradually with supply of new Rs.500 and Rs.2,000 notes. On Monday, the RBI increased the daily withdrawal limit from ATMs to Rs.10,000, though it kept the weekly ceiling at Rs.24,000.


All over the country, banks had to deal with huge rush of people who thronged their branches to deposit the junked notes. The deadline for depositing old notes with banks ended on December 30. Finance ministry officials informed the committee about the pros and cons of demonetisation, starting early 2016. The meeting discussed issues about demonetisation of Indian currency notes of Rs. 500 and Rs. 1,000 and the impact thereafter.



From E-Group, Banking-News



Manmohan Singh saves Urjit Patel from answering uncomfortable queries on demonetisation


The Times of India

Published on January 19, 2017



New Delhi, January 18: Amid heated and often partisan politics over demonetisation, former PM Manmohan Singh came to the rescue of embattled RBI governor Urjit Patel on Wednesday, saying Patel need not respond to a query whether banking restrictions were not being lifted as this would result in a run on banks.


Singh pointedly intervened during a meeting of the standing committee on finance when Congress MP Digvijaya Singh suggested that Patel was not clearly answering a question on withdrawal of restrictions as he would have to admit that removal of restraints would result in chaos. "You need not answer that question," Singh told Patel, ending the line of inquiry and MPs did not press the governor on the issue, perhaps in deference to Singh's standing and experience as a former central bank governor himself.


The sequence of events saw BJP MP Nishikant Dubey posing two questions on "behalf " of Digvijaya Singh as the meeting was drawing to a close on how much money had been deposited by December 30 and when restrictions would be removed.


Coming from a strong critic of demonetisation- Manmohan +Singh has described the measure as monumental mismanagement and organised loot- the remarks ensured a more sedate discussion than might have been the case. Senior Congress member and panel chairman Veerappa Moily urged members ahead of Patel's appearance that the institution of RBI and the governor's status be respected and honoured. "Questions should be put politely," Moily said. He said the committee had been functioning in a nonpartisan manner and he hoped this would continue. He said officials should not be pressed on points that they did not have clarity.


Sources said comments by the two senior Congress leaders defused political tension that could have been reflected in the committee's proceedings, particularly in the midst of electioneering where demonetisation is a key issue.


The query on banking restrictions, in the context of the Rs 24,000 per week and the earlier Rs 2,500 daily limit on ATM withdrawals, suggested that without such restrictions, banks would have witnessed chaos. Later, Patel explained that the average per savings account withdrawal was between Rs. 12,000 and 13,000, prior to demonetisation. A tougher tenor adopted by members like Digvijaya with regard to Patel's responses was blunted when Moily observed that witnesses who appeared before the committee could not be forced to answer questions.


There was some frustration over Patel and senior finance ministry officials who briefed the committee before the RBI governor met the panel not providing specific answers, considerable time was consumed by members posing questions. Sources said since members were not restricted to asking a certain number of questions, some went on for a while, consuming the panel's time. The members asked several questions that will be answered in detail later.



From E-Group, Banking-News



Note ban will hurt growth: Patel to panel


A M Jigeesh

The Business Line

Published on January 19, 2017



The RBI chief was, however, mum on many other points


New Delhi, January 18:  RBI Governor Urjit Patel told the Parliament’s Standing Committee on Finance that the central bank’s decision to lower the growth forecast at least by half a percentage point was due to the possible impact on demonetisation. Former Prime Minister Manmohan Singh, who is also a member of the panel, had earlier warned that there could be a two-percentage-point decrease in GDP growth due to demonetisation.


“He (Patel) said it may not be 2 per cent, but agreed that at least half a per cent decrease can be expected due to demonetisation. He told us that was the reason why the RBI lowered the growth forecast to 7.1 per cent from 7.6 per cent for the current fiscal,” a panel member told BusinessLine.


Patel, however, did not answer questions from the MPs on the impact of demonetisation on various sectors including banking. He told the members that Rs. 9.2 lakh crore worth of new currencies have been introduced. “He said the restrictions will be withdrawn in a phased manner and assured us that banks will face no problem in getting the new notes,” another member said.


Patel, however, did not specify the number and value of notes which were withdrawn from the system. He also did not specify the cost incurred for printing the new notes and withdrawing the demonetised currency. Both Patel and senior officials of Finance Ministry, who appeared before the panel, said that the RBI had implemented the Centre’s decision to demonetise high-value notes. “They told us that the preparations started from January, 2016,” the member said.


The officials also faced questions from the members on the preparedness of the banks and the Centre for implementing the decision. “Though it was a cordial meeting, both the RBI and the Centre were not prepared to answer our queries. They wanted more time and agreed that written answers will be sent to us,” a member said.



From E-Group, Banking-News



RBI not verifying all withdrawn

notes in currency chests


G Naga Sridhar

The Business Line

Published on January 19, 2017



This could lead to non-detection of fake notes, accounting errors


Hyderabad, January 18: The demonetisation exercise, which has caused hardship to people for over two months now, is unlikely to provide a clear picture of the fake currency situation in the country.


This is because the ongoing verification process of withdrawn Rs.500 and Rs.1,000 notes by the RBI is not being conducted in a foolproof manner, according to reliable sources.


“The verification of demonetised notes, which are now being called specified bank notes (SBNs), is being conducted only on a random basis and not entirely,” a source told BusinessLine. During the inspection, only a small number of notes are being checked, leaving almost entire consignments unchecked, both qualitatively and quantitatively.


It is learnt that, on an average, only 30 per cent of the Rs.500 notes and 25 per cent of the Rs.1,000 notes are being verified to detect fake notes. The process is currently on at 4,075 currency chests across the country.


So far, there has been no authentic data on the old notes returned to banks from November 9 till December 30. According to reports, around Rs.14.5 lakh crore of the total recalled notes of Rs.15.4 lakh crore had come back.  In a statement on January 5, the RBI said the entries done at the large number of currency chests in the country “need to be reconciled with the physical cash balances to eliminate accounting errors/possible double counts, etc”.


Contradictory approach


But the part-verification process being followed now goes against this objective and the final data on demonetised notes can never be authentic. In over 50 circulars issued by the RBI since the announcement of demonetisation on November 8, 2016, it always identified elimination of fake currency as one of the objectives of the exercise.


As the general practice is to shred (destroy) old notes after verification, it can never arrive at the number of fake notes that were returned. In a communication to the top management last week, the RBI staff noted that “the exponential increase of fake currency notes detected in the currency verification system post-demonetisation is alarming.”


So, it remains to be seen how the RBI will be able to arrive at authentic figures on the entire demonetisation exercise once the verification process is completed.



From E-Group, Banking-News



Cabinet clears alternative mechanism for

Public Sector Undertaking sale modalities


The Press Trust of India

Published on January 18, 2017



New Delhi, January 18 (PTI): The Cabinet headed by Prime Minister Narendra Modi today delegated powers to a select group of ministers that include Finance Minister Arun Jaitley to decide on modalities of stake sale in PSUs.


Once the Cabinet approves disinvestment in a public sector undertaking, the group that includes the Finance Minister, Road Transport Minister Nitin Gadkari and the concerned administrative minister, will take over decision making on a range of issues - from date of stake sale, price band and tranches.


"The CCEA has given its approval to Alternative Mechanism, who would decide on the quantum of disinvestment in a particular Central Public Sector Undertaking (CPSE) on a case by case basis subject to government retaining 51 percent equity and management control," an official statement said.


This is in addition to the present functions performed by 'Alternative Mechanism' as has been approved by CCEA in August, 2014, said the statement issued after the Cabinet meeting.


The Cabinet today also gave nod to Finance Ministry proposal to reduce its stake in five state-run general insurance companies to 75 per cent from present 100 per cent.


Under the 'Alternative Mechanism', now the minister's group would decide on the quantum of stake sale in these individual general insurance companies and the pricing. They can decide to bring down the stake to 75 per cent in tranches and there would be no separate Cabinet approval required for this, sources said.


"This would reduce speculation and overhang and expedite the disinvestment process," the official statement added.


The government has set a target of Rs 56,500 crore from PSU disinvestment in current fiscal. Of this Rs 36,500 crore is to come from minority stake sale and Rs 28,000 crore strategic sale of PSUs.


So far in current fiscal, the government has raised over Rs 23,500 crore through PSU stake sale.



From E-Group, Banking-News



Urjit Patel’s first address: Guard RBI’s reputation with ‘zero tolerance’ against violators


The Press Trust of India

Published on January 18, 2017



Mumbai, January 18 (PTI):  RBI Governor Urjit Patel has told colleagues that any effort to belittle the reputation of the central bank deserves “zero tolerance” and asked them to guard the integrity of the institution. In his first address to the staff after taking over as the 24th Governor on September 4, 2016, Patel, in an email, said the RBI has achieved the excellence only because of the collective efforts of its employees.


Specifically talking about the withdrawal of Rs 500 and Rs 1,000 notes by the Centre on November 8, he said, “Let me emphasise that one thing we should all zealously guard is the integrity and reputation of our organisation and any act belittling the same should deserve zero tolerance from all of us.”


It may be noted that during the demonetisation drive, a few senior RBI employees were held for alleged money laundering and illegal exchange of banned notes. Following this, the CBI had in December arrested a few RBI officials. Post-note ban announcement, the RBI in general and Patel in particular, were also criticised by Opposition politicians as well as analysts over “abdication” of responsibility by the monetary authority.


Some of Patel’s predecessors including D Subbarao, Y V Reddy, Bimal Jalan, and Manmohan Singh, criticised the apex bank for not doing enough to reassure the public in the wake of currency invalidation exercise. During the 50-day demonetisation period, the RBI faced flak for numerous flip-flops over currency exchange norms.


“I am confident that all of us working together will rise to the occasion and face these challenges in a manner befitting the reputation of this esteemed organisation,” Patel said in his email to the employees on the eve of the New Year. Patel said that during the year gone-by, RBI continued its efforts at restoring macroeconomic stability to the economy. “While the policy actions have already shown positive effects, nevertheless they are work in progress and need to be fine-tuned constantly to keep pace with the changing environment,” he said.


RBI employees union, feeling “deeply humiliated” by the events since demonetisation, on January 13 wrote a letter to Patel protesting against operational mismanagement in the exercise and the government bid to impinge on its autonomy by appointing an official for currency coordination. In the letter, they claimed this has “dented beyond repair” RBI’s autonomy. They said appointment of a senior Finance Ministry official for currency coordination was a “blatant encroachment” on RBI’s exclusive turf of currency management.



From E-Group, Banking-News



Cash as store of value has trended

down over last 50 years: Study


Vinson Kurian

The Business Line

Published on January 19, 2017



Thiruvananthapuram, January 18: Cash as a store of value or as a prime mode of saving has shown a secular downward trend in the country during the last 50 years. But the velocity of currency (ratio of nominal GDP to cash in circulation) has declined, implying faster growth in currency holdings than nominal GDP.


Time Deposits Up


This is the finding of a research study by R Mohan (till recently with the Indian Revenue Service), N. Ramalingam (Gulati Institute of Finance and Taxation, Thiruvananthapuram) and D Shyjan (John Mathai Centre, Thrissur). The research was aimed at tracking trends in cash holding, estimating tax leakage and sizing up the extent of tax-evaded income in India.


While the first is based on long-run trends, the second and third are based on the latest three years for clear empirical reasons. The holding of cash as a store of value is on the decline and time deposits occupy a much better position, the research shows.


Banking Substitutes


To get a better picture, the researchers looked at the growth in cash holdings, nominal GDP and the velocity of currency. The velocity declines in an economic situation in which GDP grows faster, implying that cash held by the public has grown faster than GDP.


This happened during a period when the cash-to-bank deposit ratio headed south, the research shows. In the 2000s when substitutes such as Internet banking and credit/ debit cards were introduced, the velocity had declined, indicating a boost in cash holdings even as nominal GDP grew faster.


The higher cash holding could not be attributed to a higher tax ratio, either as lower tax rates had more or less stabilised during this phase.


Government Spending


A probable reason could be higher government spending to fight the global economic slowdown and evidenced in the rise in revenue deficit-GDP ratio. As regards tax evasion, the study estimated that during 2012-13, 2013-14 and 2014-15, the actual direct tax collection was at 44, 45, and 43 per cent of the potential. The size of tax evaded income works out to 40.96 per cent of the official Gross Value Added (GVA).


These estimates hold good if the downward bias of about 25 per cent in estimation of GVA, as found in a study in 2015 by Sacchidananda Mukherjee and Kavita Rao (NIPFP), is factored in.


Lacks Coordination


If this downward bias in GVA is excluded, direct tax collected would be 63, 64 and 62 per cent of the potential, and tax evaded economy would be 21 per cent of official GVA, which is still substantial, the researchers said.


Such large direct tax leakage calls for serious thinking, especially in the context of technology-based tools having entered the direct tax administration in a big way. Leakage in direct tax mop-up could have led to a shrinking of the divisible pool of taxes for states. A major cause of tax leak is the poorly coordinated actions by different agencies without proper sharing of information and in good time.



From E-Group, Banking-News



There's bad news for Modi's digital push as

card use slows and cash makes a comeback


Pratik Bhakta

The Economic Times

Published on January 19, 2017



Mumbai, January 18:  Business for payment companies that operate card acceptance infrastructure at merchant outlets saw almost a 30% jump in transactions after the withdrawal of 500 and 1,000 denomination notes from circulation, but the last weeks of December and early January, with cash creeping back into the system, the rise in cashless transactions is tapering off, industry executives said.


“There has been a slowdown in the rate of growth of card based transactions over the last few weeks, but the growth trend still continues to be positive,” said Lokvir Kapoor, CEO of Pine Labs which facilitates installation of payment terminals at merchant outlets. “What we are seeing now is slowdown in the week-by-week growth numbers.”


The major reason for the slowdown is that cash is coming back into the system and the Reserve Bank of India printing more 500 denomination notes has increased liquidity.  The people using cards for almost every transaction no matter how small in November and early December have now switched over to cash, payment industry executives said.


“We have seen that small value payments which were being done through card after demonetisation are shifting back to cash with change against Rs 2,000 not being such a major problem anymore," said Kapoor. “This was something that we had expected will happen and we are confident that the market will continue to grow.”


While there has been a decline in small card purchases, another trend is that in smaller towns and cities where card payments jumped significantly post demonetisation, transaction values have shrunk.


“In cities anyway card payments were around 40% which increased to almost 80% post demonetisation but in smaller towns and villages the figure was less than 15% which jumped to around 30%, we can see the pressure being created from the remaining 70% that was cash even during those two months,” said Rajeev Aggarwal, chief executive of Innoviti Payment Solutions, which works with 50,000 merchants installing PoS terminals for banks like HDFC Bank, State Bank of India and Axis Bank.



 From E-Group, Banking-News



A bad year for workers,

and other bad news


Jinoy Jose P

The Business Line

Published on January 19, 2017



C’mon! You relayed some bad news last week as well!


Oh, my apologies. Maybe it’s a statement of mind. In any case, we only interpret the world as it is. Yes, last week we discussed the question of how unequal the world has become (‘Maximum wages, Jeremy Corbyn, and more’, January 12). And you may have noticed that the latest Oxfam study endorses this.


What does it say?


It says just eight men own the same wealth as the poorest half of the world. Oxfam says India’s richest 1 per cent owns more than half the country’s wealth. The study, which was billed a “neo-marxist canard” by critics, didn’t surprise inequality watchers, but shocked the rest of the world for what it has revealed.


And what’s that?


Well, it appears that over the next 20 years, 500 people will hand over $2.1 trillion to their heirs. Mind you, this sum is larger than the GDP of India. Again, the incomes of the poorest 10 per cent of the world population increased by less than $3 a year between 1988 and 2011, while the incomes of the richest 1 per cent increased — hold your breath — 182 times.


But I read that poverty rates are falling across the globe.


They are. The poor are not as poor as they were, say, a few decades ago. For instance, between 2012 and 2013 alone, 100 million people were lifted out of “extreme poverty” (living on less than, say, ₹125 a day). Hunger is also declining. In developing countries, only about 13 per cent of the people are undernourished, against more than 23 per cent in 1990.


But it’s the gap between the rich and the poor that we’re more worried about. If we don’t fix this through policies and corporate action, things will get worse. As things go now, our poverty eradication targets will also miss their deadlines.


How so?


A new report from global labour watchdog ILO says that “working poverty” rates are not falling rapidly and this could undermine the UN Sustainable Development Goals of eradicating poverty. Hence, the number of workers earning less than $3.10 (about ₹200) a day is expected to increase by more than five million over the next two years in developing countries, including India.


What’s the prognosis, then?


No shortcuts here, but to check inequality as much as we can via policies and individual acts. And the most important thing is to create more decent jobs — work that pays well, while offering enough social security cover for workers. This forms the crux of the UN’s 2030 Agenda for Sustainable Development.


Is the agenda being pursued with the earnestness it deserves?


I must disappoint you there. The trends reveal otherwise. A new report from ILO shows the number of working age people without proper employment will hit 200 million in 2017. That’s a new record (if you can call it one in the first place). ILO says global unemployment will rise by 3.4 million this year, and by 2.7 million in 2018; that’s because the workforce is growing faster than jobs being created. ILO has bad news for those who work, as well.


What’s that, now?


In all likelihood, they won’t get a raise this year thanks to a myriad reasons, from global slowdown to declining empathy towards workers’ rights. Global wage growth, inflation-adjusted, fell to its slowest pace in four years in 2015 (data for 2016 is yet to come). Half of the workers in southern Asia and nearly two-thirds in sub-Saharan Africa face extreme or moderate poverty, says the ILO.



From E-Group, Banking-News



Potential of bitcoin in the time of demonetisation


Amit Jaju, The Mint

Published on January 19, 2017



Increased usage can make such currencies relatively more

stable over time and offer opportunities for add-on services

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