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Banking News 21.01.2017

Bank employees to go on strike on February 7


Abhijit Lele

The Business Standard

Published on January 21, 2017



Workers will also hold a dharna at

Reserve Bank of India offices on February 2


Mumbai, January 21:  Bank staff and employee’s unions have given a call to strike work on February 7 to highlight problems faced by them while implementing demonetisation and seeking an effective mechanism of recovery of huge bad loans.


C H Venkatachalam, general secretary, All India Bank Employees’ Association (AIBEA) said in a statement: “Everyone is appreciating the hard work done by the bank employees, officers and managers in managing the situation in the banks so well after November 8. But, there is reluctance and hesitation to extend proper compensation and overtime for the long extra hours of additional work done. This is totally unacceptable.”


Banking sector employees will hold a dharna at Reserve Bank of India offices on February 2, followed by a mass demonstration on February 7.


Besides AIBEA, the All India Bank Officers Association (AIBOA) and the Bank Employees Federation of India (BEFI) are taking part in the strike. Unions said they have been pursuing these issues — demonetisation and action against big defaulters — with the Indian Banks’ Association (IBA) but with no result.  Hence it was felt necessary to resort to agitation.


The government and the RBI were expected to take necessary steps to mitigate the problems faced by the banks and the public after demonetisation. But an acute shortage of cash supply still exists. As a result, bank branches are not able to honour even the restricted payments of Rs 24,000 and Rs 1,00,000 per week.


Most ATMs are still not functioning or do not have cash to dispense. This is causing great inconvenience, disappointment and frustration to the customers. There are many instances of customers expressing their resentment on the staff, leading to avoidable tensions at the branches. There is also no transparency in supply of cash to banks, the AIBEA said.


“It was expected that the government and the RBI would take necessary steps to mitigate the problems faced by the banks and the public but even now, we find that there is acute shortage of cash supply to the banks….,” the AIBEA general secretary.


The unions are also demanding that the names of the individuals who have defaulted in paying loans of Rs 1 crore and above be published. Other demands include ensuring autonomy of RBI in cash management, compensation to family of general public, bank customers and bank staff who lost their lives in the demonetisation aftermath and payment of overtime to employees and officers for their additional effort during the 50-day demonetisation period.



From E-Group, Banking-News



Unhappy PAC asks Urjit to give

written answers on note ban


Amit Agnihotri

The Business Standard

Published on January 21, 2017



The governor did not give specific

answers on who initiated the note ban


New Delhi, January 20: Unsatisfied with the responses of Reserve Bank of India (RBI) Governor Urjit Patel to specific queries on demonetisation, the Public Accounts Committee (PAC) of Parliament on Friday asked him to furnish written replies to the concerns expressed by the members within two weeks and appear before the panel again.


Patel, along with Deputy Governor R Gandhi and other senior functionaries, appeared before PAC for oral evidence on “Review of Monetary Policy”. The governor did not give specific answers on who initiated the note ban, how much cash had come back into the banks and when the cash supply situation would normalise, sources said.


During the four-hour-long meeting, Opposition members asked Patel questions on the dent in the economy, job losses and the loss of over 100 lives allegedly caused by demonetisation. “He (Patel) said there may be problems but we will overcome them,” said a member on the panel.


The RBI governor said the central bank was in touch with the service providers of some online payment platforms to reduce transaction cost. When a member pointed out that the deposits in cooperative banks shot up around six times within days of the note ban, Patel, said the RBI was looking into the matter.


To have further clarity on the impact of the note ban, PAC has also asked Finance Secretary Ashok Lavasa, Economic Affairs Secretary Shaktikanta Das, Revenue Secretary Hasmukh Adhia and Financial Services Secretary Anjuly Chib Duggal to appear before it on February 20.


Also, more than 72 days after demonetisation, RBI, in a written answer to queries raised earlier, said it still did not know the exact number of junked currency notes that were in circulation and it is still reconciling the number of notes that were deposited back.


The central bank said: “The exact number of specified bank notes withdrawn from circulation is being worked out.”


Earlier this week, Patel had told the Parliamentary Standing Committee on Finance that new currency notes to the tune of Rs 9.2 lakh crore had been introduced into the system after the removal of the old notes.


PAC was informed by RBI that the matter related to demonetisation was under discussion between the government and RBI for “some months”, following which the proposal was placed before the central board of RBI on November 8 for consideration. The board recommended the proposal to the government.


The Board meeting was attended by Governor Patel, two Deputy Governors (Gandhi and S S Mundra), and five directors — Nachiket Mor, Bharat N Doshi, Sudhir Mankad, Shaktikanta Das and Anjuly Chib Duggal.


Defending the cash withdrawal limits imposed after the note ban on November 8, the RBI governor said, “The ceiling on withdrawal was determined on the basis of availability, past utilisation pattern and considering the needs of the common people so that hardships are minimum.” The government has increased the cash withdrawal limit from ATMs to Rs 10,000 per day but has not changed the cap of Rs 24,000 from banks per week. In between, it has changed the limits a number of times, as well as relaxations given on payments through scrapped currency notes.


In his written reply, Patel pointed out that, in the past, people were withdrawing Rs 12,000 or Rs 13,000 per week, and Rs 50,000 per month, on an average. “He (Patel) said the benefits of the note ban will come in the medium and long terms,” said another PAC member.


As Opposition members lobbed queries at Patel, the Bharatiya Janata Party (BJP) members praised him for demonetisation and maintaining secrecy in the matter. This provoked an Opposition member to jokingly remark that the House should pass a vote of thanks for the RBI chief.


As soon as the meeting began, K V Thomas, chairman of PAC and a Congress MP, made a statement on demonetisation, prompting protests from BJP members, including Bhupender Yadav, Kirit Somaiya and Nishikant Dubey. Citing the amendment in the RBI Act in 2016, they said any question put to Patel must be in context of the central bank’s monetary policy and not outside it.


After a long debate, the panel agreed that questions on demonetisation could be asked but only in the context of monetary policy. It is learnt that Patel said the cash flow position had largely improved in the country. To questions on the impact of demonetisation on growth, Patel said there might be impact in the short run, but in the mid and long terms the move was beneficial for the economy.



From E-Group, Banking-News



Government went ahead with demonetisation

despite RBI concerns: report


Rajesh Kumar Singh & Suvashree Choudhury

The Mint, Published on January 21, 2017



RBI’s testimony to PAC shows the bank had warned

the government of possible inconvenience to the public


New Delhi & Mumbai, January 20 (Reuters): India pushed ahead with its decision to demonetise high-value banknotes even as the Reserve Bank of India’s (RBI) own board expressed concern whether the cash could be replaced quickly enough, the central bank has said in written testimony to parliament.


The revelation comes amid growing criticism about whether RBI and the government had sufficiently assessed the potential fallout from the 8 November ban of about 86% of the cash then in circulation.


Prime Minister Narendra Modi’s shock demonetisation move caused a severe cash shortage that brought large parts of the economy to a virtual standstill, as the central bank struggled to print new Rs.500 and Rs.2,000 notes to replace the old currency.


A copy of the private testimony to a parliament panel, seen by Reuters, showed the central bank had also warned the government of “possible inconvenience to the public for some time,” among the potential consequences of the massive exercise.


Despite its own doubts, the testimony showed, the RBI board approved the plan to ban Rs.500 and Rs.1,000 notes, as it believed the move would rein in counterfeiting and reliance on cash, and pull unaccounted cash into the financial system.


“It might not immediately be possible to replace these notes fully in terms of both value and volume,” the board felt at a meeting ahead of Modi’s 8 November announcement, according to the central bank submission.


But the RBI’s board ultimately believed that “corrective” action could be taken and decided to recommend the move, the document showed. The RBI also believed the impact of such an exercise would be “transitory”, given its efforts to quickly replace the old notes, it said in the testimony.


The RBI’s endorsement of the government action has drawn strong criticism from several former policymakers, including former Prime Minister Manmohan Singh, the architect of India’s 1991 financial reforms and a former central bank governor.


The document also notes the proposal to ban the cash had come from the government, in a letter a day before the announcement that advised the RBI to “immediately” put the plan before its board for approval.


Under India’s RBI Act, such a move was necessary. The central bank did not immediately respond to Reuters’ request for comments on its submission to parliament.


‘Painful’ for RBI


Since Modi declared the ban, the central bank has been forced to announce a barrage of measures to soften the impact, including several high-profile reversals, undermining confidence in it.


In a letter to RBI governor Urjit Patel, unions of central bank employees called such criticism “painful”, and accused the government of steering decisions behind the replacement of the banned notes, saying that “blatantly encroaches” on the central bank’s jurisdiction.


The government, however, has denied it was taking the decisions during the implementation, saying that it was merely cooperating with the RBI and reiterating that it fully respected the autonomy of the central bank.


Power and coal minister Piyush Goyal said such cooperation was necessary, since it involved an unprecedented “exercise” and that the flurry of action showed India’s flexibility in taking the necessary measures.


“They never had got an experience of this kind of a war-type situation,” Goyal said, referring to the RBI. “So, every organization which is doing this is doing it for the first time. You will learn as you go along.”


Previous banknote bans have not had such a dramatic impact as they removed only a small fraction of cash from circulation. Reuters



From E-Group, Banking-News



The PAC is not a court of law; it is only

seeking information: KV Thomas, Chairman, PAC


The Economic Times

Published on January 21, 2017



New Delhi, January 20: In an interview with ET Now, KV Thomas, Chairman, PAC, speaks on demonetisation and the amount of scrapped currency that has come back into the system. Edited excerpts:


ET Now: Today the RBI Governor was quizzed in detail by the PAC members. Any specific details that he shared in terms of the amount of scrapped currency that has come back into the system?


KV Thomas: The honourable members have prepared questions in advance and that has been sent to RBI as well as to the senior officials of the Ministry of Finance. On the basis of that, the RBI had prepared a written answer which has been circulated to the members. Then, as our subject is the impact on the economic situation, so many issues are there connected with the economic situation. So members have put the questions. Naturally, people expect that how much money has come back but we cannot expect the RBI Governor to give straight answer. They have got their own procedures and RBI is an institution of the constitution. So we have to protect the autonomy of the institution. So we also asked them who took the decision…


ET Now: I was coming to that that did the governor today give any details as far as the entire decision making process is concerned? Whether it was a decision taken by the government, what happened in the RBI board meeting on 8th of November?


KV Thomas: These questions our board members have put who took the decision. He has not given an answer because that also need some time for clarity but he said that the autonomous character of the RBI will always be protected. He also said that is what we want. So let us wait. On 10th of February after the session, we have decided to call the senior officers in the Ministry of Finance. I have also told the governor that within 15 days’ time give answer to all the questions, oral questions which the honourable members have raised.


ET Now: Were there a lot of questions that the members that were not answer or they did not get satisfactory answers from the RBI Governor?


KV Thomas: There is no question of satisfactory answer in our PAC because we put the questions and whatever they know at that point of time they will answer orally, otherwise they will write to us that is why I said 15 days time. So the PAC is not a court of law, it is getting, seeking information and we have to respect the institutions also and RBI is one among that.


ET Now: You had mentioned that the PAC’s aim was to find out that after 50 days of demonetisation things have not stabilised and things are difficult for the common man. Did the governor point out as to how long before things become absolutely normal?


KV Thomas: No he did not come to that point but their attempt is to normalise everything so they will take appropriate actions.


ET Now: No timeframe was given?


KV Thomas: No timeframe was given. It takes its own time.


ET Now: Did he also talk about when these withdrawal limits that are in place right now, when could those restrictions be removed?


KV Thomas: Those answers he cannot give now. We do not expect also. Even the questions have been raised, that will be answered within 15 days when we have given the timeframe.



From E-Group, Banking-News



SBI Research sees nearly 70%

money supply normalisation by Feb-end


The Press Trust of India

Published on January 20, 2017



Till Dec 19, 2016, the RBI had said that

around Rs 5.9 trillion notes were remonetised


Mumbai, January 20 (PTI): Currency circulation is likely to normalise by the end of February as nearly 70 per cent of the notes will be remonetised by then, a report said on Friday. "We are still maintaining that 70 per cent of the notes will be remonetised by February-end," said the report brought out by SBI Research.


The report said with transactions at the fuel pumps amounting to Rs 4.5 trillion on an annualised basis, even a 20 per cent shift to digital would mean a saving of Rs 1 trillion. "Hence normalcy will return most likely by the end of February." As per the latest RBI data on currency in circulation, the newly-supplied currency till January 13 was around Rs 7 trillion, which means roughly 70 million pieces of notes of different denominations are being printed per day.


It translates into around 1.8 billion pieces a month by the currency printing presses, it said. Till December 19, 2016, the RBI had said that around Rs 5.9 trillion notes were remonetised. Hence, during the intervening period of December 19 and January 13, about Rs 1 trillion worth of notes have been printed.


The report said, given the current printing press capacity, it is highly unlikely that the RBI has only printed Rs 500 banknotes in entirety. This would mean around 2.2 billion pieces of Rs 500 notes worth Rs 1.1 trillion, an unlikely event since the printing capacity is less than two billion pieces in a month, going by the data.


Hence, the monetary authority has most likely also printed notes of varied smaller denominations as well as Rs 2,000 bills to optimise the printing capacity, the report said.


"Printing of new notes is going on at a pace keeping in mind the less-cash future and not the past, and we welcome this new normal. The future belongs to money as a medium of exchange and not as a store of value," it added.



From E-Group, Banking-News



System not yet ready for cashless

economy, RBI Governor tells PAC


A M Jigeesh

The Business Line

Published on January 21, 2017



New Delhi, January 20: RBI Governor Urjit Patel, who appeared before the Public Accounts Committee looking into demonetisation and its impact on monetary policy, told the panel that the country’s infrastructure is not ready for a cashless economy. He assured the panel that the RBI is working out ways to reduce transaction costs involved in digital payments.


As was the case when he appeared before the Finance Standing Committee on Wednesday, Patel, did not face any tough questions at the meeting held here on Friday. He was given 15 days to reply to the questions posed by the members. “We will take a look at his replies and if necessary will call him again,” a member said.  Patel said the cash flow will be normalised very soon and reiterated that the decision will have a short-term impact on GDP growth.


The BJP members in the panel protested over questions being posed to the Governor on demonetisation stating that the agenda of the meeting was the review of monetary policy. However, majority of the questions were on the withdrawal of notes. “He said infrastructure, including the spectrum, is not ready for digital payments at the moment. He, however, said that the RBI will promote a cashless economy,” another member said. The panel will meet the Finance Ministry officials soon after the first lap of Budget session.


In the three-and-a-half-hour-long meeting, there were questions on fake currencies as well. SP member Naresh Agarwal reportedly came with fake notes of Rs. 2,000 and urged the Governor to take action. The BJP members said the decision to demonetise certain high value notes is a “bitter medicine” to save the economy.  “Everything will improve after some time,” a BJP panel member said while defending the Modi government.


There were also questions on the controversy about the allegations by the Congress that foreign company De La Rue was allowed to print Indian notes. Members also expressed anguish over the alleged discrimination against cooperative banks by the RBI. They wanted to know the exact amount of withdrawn currencies that has been deposited back to the banks. Patel apparently demanded more time to reply to the question.



From E-Group, Banking-News



RBI autonomy: Why Modi govt must stay

 at an arm’s length from Mint Road


Dinesh UnnikrishnanJan

The Firstpost Online

Published on January 20, 2017



In 2016, one of the most debated topics was

Reserve Bank of India (RBI)’s independence, or lack of it.


The manner in which the exit of former RBI governor Raghuram Rajan happened, the ascension of Urjit Patel to the post of governor in September and the subsequent demonetisation announcement by Prime Minister Narendra Modi in November, gave enough room for Modi critics to cry foul on the rapid deterioration in the central bank’s independence in discharging its functions and government interference in RBI autonomy.


Is RBI an autonomous body in reality?


It is not. According to the RBI Act, 1934, the central bank is answerable to the government. Section 7 of the RBI Act says “The Central Government may from time to time give such directions to the Bank as it may, after consultation with the Governor of the Bank, consider necessary in the public interest.”


Also, it is illogical to think that an institution like RBI, whose head is appointed by the elected government, not Parliament or by the people, can act completely independent of the ruling political dispensation.


So what’s the big fuss about the RBI’s autonomy?


The RBI can’t be treated at par with other sector regulators such as Securities and Exchange Board of India (Sebi), Insurance Development and Regulatory Authority (IRDA), Pension Funds Regulatory and Development Authority (PFRDA), whose roles are rather limited to certain specific areas. Compared to these institutions, the RBI has a much bigger profile on matters related to the broader economy.


As former RBI governor Y V Reddy said in one of his recent interviews, monetary policy is one of the many functions of the RBI. The others include the government’s debt management, banking sector regulation and supervision, currency management and more importantly, managing price stability in the economy, thus guarding the credibility of the financial system.


Autonomy debate


Why we need RBI? Can’t the government, the people-elected body, undertake this function? This could have been possible, but the political dispensations always tend to have short-term, pro-growth view on the economy rather than long-term financial stability. Also, the governments are prone to use the banking system to push their populist objectives in order to appease the vote bank, even though the action may not be in the good interest of the banking system (examples are loan waivers and calls to restructure loans). These are the reasons why a foreigner who looks at India attaches more value to the guidance and caution from the RBI than a minister.


This is perhaps the reason why a clutch of former RBI officials, including Reddy, Manmohan Singh, Bimal Jalan have pitched for the independence in the operations of central bank. In the aftermath of note ban, this chorus has grown louder. Reddy, in an interview, complained of erosion in the central bank’s autonomy and a threat to its hard-won reputation over years.


In an interview to CNBC-TV 18, Reddy said. “I would even go to the extent of saying that particularly recent events, I have seen the comments from economists, from Standard & Poor’s and they are disturbing. For the RBI, for a central bank, reputational risk is the worst risk. Credibility is the worst risk. And if this is happening in the international opinion, I would say that it is a national problem now and it is not just a political issue,” Reddy said.


Jalan, too cautioned about the autonomy, in an interview to CNBC-TV 18. “The autonomy of the RBI — that is a very fundamental fact and we have to maintain it and I hope the government would give attention to that part also,” Jalan said.


Not just NDA Vs RBI


Though the issue of RBI autonomy came under greater public scrutiny during the Narendra Modi government's regime that came to power in May 2014, particularly after the Raghuram Rajan episode and RBI’s role in managing the demonetisation exercise, the fact is that the RBI-government autonomy debate is not a new development.


It is well known that the government always put pressure on the RBI to push interest rates down to support growth, leading to open conflicts. At a larger level, the process of cutting the RBI’s wings began way back during the UPA days, especially when the Financial Sector Legislative Reforms Committee (FSLRC) had recommended taking away the debt management from the central bank to a separate entity, public debt management agency (PDMA) and creating a super regulator and shifting the power to set interest rates from the governor to a monetary policy committee (MPC).


While both the proposals — creation of PDMA and MPC — have been welcomed largely to improve the existing framework and avoid conflict of interest, the plan to create a super regulator has been discarded outright. Rajan called it ‘“somewhat schizophrenic”. The process of further weakening the central bank continued during the NDA regime, when the government failed to fill the posts of a number of non-official directors on the board of the RBI at a time when the central bank was engaged in a credibility fight struggling to manage the massive demonetisation exercise in Asia’s third largest economy.


In hindsight, thus, the RBI’s powers have already been cut down significantly or the process is on.


Note ban


Demonetisation episode has raised further questions on central bank’s authority in the currency management as well, but the finer details will only emerge when the finer details of the thought process that led to demonetisation will be made public. Former RBI deputy governor, K C Chakrabarty, in this interview, said that the central bank, in the past, was not keen for demonetisation. “In the past, RBI has been uncomfortable with it, as rough estimates suggest only 6 percent to 8 percent of black money is in cash. And it does not make sense to hurt 90 percent people, especially the poor and underprivileged, for such a small percentage of black money,” Chakrabarty said.


“It is like bombing a building with 200 people to kill five terrorists. Also, the people with money have more clout. They can hide black money in many other ways. Ultimately, the poor and underprivileged suffer,” the former deputy governor said in the interview.


The point is, no government would have wanted a central bank absolutely independent in functions, but the central banks across the world continued to enjoy a level of autonomy in their operations. As former FM P Chidambaram writes in this column the power offered by Section 7 has never been exercised in the 83 years of the RBI Act.


Mint article points out that the RBI has been one of the least independent central banks in the world. As this report argues, the current debate on the RBI's autonomy shouldn’t be confined to monetary policy but larger issues.


A toothless, weakened central bank wouldn’t do any good for any aspiring economy like India, which is somewhat the situation at this stage. The global investors and economy watchers will then look at the country with an element of scepticism. Rating agencies have issued caution on a growing trust deficit in India when RBI’s autonomy is curbed and have noted that note ban has hurt confidence in the central bank. No one doubts the Modi government’s intention to clean up the economy and making an attempt using demonetisation as a tool to achieve that objective. But, this government would do well taking note of the warnings signals and stay at an arm’s length from the Mint Road.



From E-Group, Banking-News

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