Demonetisation: Month to go, bankers say 90-95 per cent money will return to system

Bankers expect at least 90 per cent of the Rs 500 and Rs 1,000 notes to be deposited in the banks.

Written by George Mathew , P Vaidyanathan Iyer | Mumbai | Updated: November 30, 2016 12:12 pm
demonetisation, cash deficit, notes scrapped, notes banned, demonetisation impact, demonetisation effects, economy affected, india news, indian express news As per the RBI data, people have withdrawn 26.7 per cent of the money deposited during the period.

ON DAY 21, surging deposits of over Rs 9 lakh crore in banks — more than 60 per cent of the total value of 500 and 1,000 rupee notes in circulation — have stirred a debate in the government about the stated objective of the demonetisation scheme, which is to break the grip of corruption and black money. Bankers and analysts estimate almost 90-95 per cent of the money will return to the system, with more than a month to go for the deadline to deposit the scrapped notes.

The Income-Tax department, meanwhile, is grappling with a possible situation of people depositing significant amounts of undisclosed money and taking it out soon after the restrictions on withdrawal are lifted on December 30.

WATCH VIDEO: Here’s Why RBI Restricted Withdrawal Limits On Jan Dhan Accounts To Rs 10,000

“Yes, it is almost akin to an amnesty scheme. People will disclose their hidden income. While we have already set up teams to probe accounts where disclosures of over Rs 2.5 lakh are being made, it will still take us a while to look at all accounts, ascertain how much is undisclosed, and then tax it at 49.9 per cent and further seek deposit of 25 per cent of the undisclosed amount in the Pradhan Mantri Garib Kalyan Yojana (PMGKY) scheme,” said an official, who did not want to be named.

Asked if there may be restrictions on withdrawals based on fine distinctions, a top government functionary told The Indian Express, “I don’t know the answer to this question. Someone is thinking about it. The Finance Minister is a lawyer.”

The official said an assessee generally has time till July 2017 to file Income Tax returns for the year gone by. “It will be a gigantic exercise. And there will certainly be problems when distinctions are made in withdrawals. It is about trust and faith in the monetary system,” said the official.

However, a minister in the government said there are many metrics to ascertain the success of the demonetisation scheme. “The money raised as taxes and penalty on undisclosed money is one metric. The other is the quantum of deposits under the PMGKY scheme. And yet another is the huge shift to a digital or cashless economy,” said the minister.

Indeed, the government and the BJP’s narrative over the last one week has taken a subtle turn from the original buoyant estimates of reaping a Rs 3 lakh crore windfall — the quantum of black money that will not return to the system — which can be used to invest in public infrastructure.

On November 26, the government set up a committee under Niti Aayog CEO Amitabh Kant to identify and operationalise, in the earliest possible time frame, user-friendly digital payment options in all sectors of the economy as an integral part of its strategy to transform India into a cashless economy.

The other members of the committee include the secretary of the department of financial services, DIPP secretary, DIPAM secretary, secretaries of the IT and rural development ministries, managing director of the National Payments Corporation of India and chairman of the National Highways Authority of India.

“Almost 10 days ago, given the pace of deposits, there was tacit acknowledgement in the government that a bulk of the 500 and 1,000 rupee notes will return to the banking system. The I-T amendment is just another income disclosure scheme that will encourage people to come clean. And those with huge undisclosed funds are breaking it down and finding ways to game the system,” said an analyst with a foreign institutional investor.

According to latest data made available by the Reserve Bank of India, banks received Rs 844,982 crore as exchange/ deposits from November 10 to November 27. Of this, exchange of notes amounted to Rs 33,948 crore and deposits Rs 811,033 crore. The RBI’s annual report of 2015-16 states that the total value of Rs 500 and Rs 1,000 notes in circulation as on March 31, 2016, was Rs 14,17,950 crore. If an average daily deposit of Rs 49,000 crore is added for November 28-29, the total deposits would swell to almost Rs 9.4 lakh crore, or over 65 per cent of the value of the total scrapped notes in circulation.

“The pace of deposits (Rs 8.5 trillion till now, 56 per cent) of cancelled notes hasn’t slowed much. If this momentum persists, a meaningful cancellation of RBI’s liabilities looks unlikely,” said Credit Suisse research analyst Neelkant Mishra. He also pointed out that there could be sustained surplus liquidity in the banking system if Rs 10 trillion of currency is assumed post-normalisation.

To this, a government functionary said the RBI may want to do open market operations. “Sell securities worth Rs 2 trillion, and withdraw part of the liquidity,” he noted.

As per the RBI data, people have withdrawn 26.7 per cent of the money deposited during the period — banks have reported that the people have withdrawn Rs 216,617 crore from their accounts either over the counter or through ATMs.

Bankers expect at least 90 per cent of the Rs 500 and Rs 1,000 notes to be deposited in the banks. “I expect that only up to 10 per cent of the cash won’t be deposited in the banks. Most of the money will come to the banks. People have time till December 30 to deposit old notes. We are trying our best to meet the requirements of the public,” said a top official of State Bank of India.

Asked whether the government and RBI would be able to finish the replacement of old notes with new Rs 500 and Rs 2,000 notes by December 30, K C Chakrabarty, who was the Deputy Governor from 2009 to 2014, said, “It depends on the efficiency of the government and the RBI. How quickly they will be able to replace these notes and supply the new notes. It depends on the capacity of the press. When I was in the Reserve Bank, and if that is the (current) position, it will take six months to print the currency notes. Whether they have made any advance preparation or they started printing early… I don’t know.”

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First Published on: November 30, 2016 4:53 am
  1. J
    Jaspal
    Nov 30, 2016 at 1:40 am
    Failed Government imposinf its failed policies on the people of the country. From Demonetisation to Border, everything under Modi is failing and innocents losing lives for nothing because the Government has no desire or will to find proper solution to anything and leaving it to "Ram Bharosey".
    Reply
    1. N
      NATARAJAN
      Nov 30, 2016 at 3:16 am
      I am not an expert but if govt restricts withdrawal beyond 20 to 40% of individuals deposit value. If some individual has deposited more than 3 lacks only 20% is allowed to withdraw. Let them settle the balance amount thru IT issued NOC
      Reply
      1. A
        Ajay G
        Nov 30, 2016 at 3:59 pm
        Those having 100 Crores will be left with 25 Crores. Will keep on fuming for a few weeks and then can carry on. lt;br/gt; lt;br/gt;Those having 10 Crores will be left with 2.5, will fume for a few months and carry on. lt;br/gt; lt;br/gt;From 3 Lakhs Crores govt will build infrastructure; roads, flyovers, smart cities lt;br/gt; lt;br/gt;Will poor be benefited ?
        Reply
        1. A
          A Bapna
          Nov 30, 2016 at 10:29 am
          I don't understand the point of this article. It is so badly structured that I can't even tell whether it is for or against demonitization!
          Reply
          1. A
            Aneesh
            Nov 30, 2016 at 12:14 pm
            @George shame on your comment on 'could visit all countries'.lt;br/gt;The goons ruled India over last 70 plus years and had scammed all poor peoples.. So mind your words you crying *** !!!lt;br/gt;Every child knows what Modi is doing. I am not biased to any political party and any specific person, but i need to admit the effort this man is putting in.. A big salute to him!!..
            Reply
            1. A
              Anuradha Kalhan
              Nov 30, 2016 at 3:01 am
              So what was the point of the w exercise? If 90% of the notes will come back to banks that means people are confident of ping the IT test one way or another! Only 10% was kept in cash that is unaccountable (the rest must be in other kinds of ets) and to fish out this 10% they drained the w ocean!lt;br/gt; But meanwhile certainly they will win another set of local and state elections because they were well prepared for this surgery. What will they do at the time of the next general elections. Nuclear bomb?
              Reply
              1. A
                ashok s
                Nov 30, 2016 at 1:26 am
                Banks may either give 0% tax on savings or lower down interest on fds or increase services charges to meet the loss of 35000cr due to increase in deposit and as RBI has asked 100% surplus liquidity with apex bank.
                Reply
                1. A
                  ashok s
                  Nov 30, 2016 at 2:22 am
                  By floating this scheme govt has killed its vast domestic market for at least an year . the side effect s are yet unknown or not so clear . but FDI will definitely shrink . as foreign companies eye huge volumes in India rather going for profit margin . the rotation of wealth will stop,
                  Reply
                  1. A
                    ashok s
                    Nov 30, 2016 at 2:17 am
                    From where will govt issue security to RBI for incremental crr . total reserves with govt is around USD 350 billion in forex , out of which its an foreigners money invested in bonds, security, stock exchange which is temporary in nature a and amounts for 300 billion USD . only USD 50 billion is net et value of our country plus gold reserves. If this foreign investment dries up or go back due any reason say us rate hike, fear of gaar, or fear on heavily taxing on long term capital gains . then it will be pain on government . many foreign donors lost confidence in India when this type of mss security was issued by govt
                    Reply
                    1. A
                      ashok s
                      Nov 30, 2016 at 1:31 am
                      Govt is giving dreams biryani to netizens who stood in queues . at the end of the day will be no or not much things to celebrate.
                      Reply
                      1. A
                        ashok s
                        Nov 30, 2016 at 2:10 am
                        If govt fails to mop up 4 lac CR's either thru RBI dividend or tax, penalties, surcharges the scheme will be only known as ber in the history
                        Reply
                        1. A
                          ashok s
                          Nov 30, 2016 at 1:28 am
                          If scheme fails to garner over 4 trillion to govt , govt might think of increasing gst rates .
                          Reply
                          1. A
                            ashok s
                            Nov 30, 2016 at 1:19 am
                            The scheme will be ber if w cash of disallowed bills comes back . total 17 trillion in circulation , less bank had 4.5 trillion during that time , now 9 trillion deposits have been made , rest will come back in few weeks fully. Then what was use of the scheme. RBI lost printing cost 35000 cr , that is printing and reprinting. Banks will loose 35000 cr as interest to its customers. Govt will loose taxes as economy will slow down .their may be deflation . GDP loss
                            Reply
                            1. A
                              ashok s
                              Nov 30, 2016 at 2:30 am
                              Where in west , the govts are giving stimulus boost to economy to generate growth , our country is curbing the money circulation . are we attempting for suicide or are we pushing our economy for a recession .
                              Reply
                              1. C
                                Citizen
                                Nov 30, 2016 at 10:03 pm
                                if just 5-10% money does not return, then it's monumental failure. Now they will shift the goal post and trumpet whatever little shift to "cashless transactions" as the fulfilled aim. What happened to "black money"? Now will the govt. bring back all Swiss money, take action against Panama paper list (which is in garbage bin)? Will there be transparency in election funding? Why a strong Lokpal bill is not being ped? If GST can be done, so can a Lokpal. In fact Lokpal will save our democracy and empower the poor people. Perhaps that's the reason, it's not beig implemented.
                                Reply
                                1. S
                                  souvik
                                  Dec 1, 2016 at 3:39 am
                                  I seriously doubt people who were sitting with 100 crores in black were sitting with 500/- and 1000/- notes, it was either transformed into Gold, realestate or into foreign banks. This demonetization has trapped the petty black money at best if at all.
                                  Reply
                                  1. G
                                    George Cv
                                    Nov 30, 2016 at 3:10 am
                                    The w point was to win the UP elections so that election 2019 could be won and modi could visit all the countries he is unable to visit during his current tenure !
                                    Reply
                                    1. G
                                      George Cv
                                      Nov 30, 2016 at 3:10 am
                                      we are trying to win UP elections !
                                      Reply
                                      1. N
                                        Nanban
                                        Nov 30, 2016 at 1:06 am
                                        Actually both 500 are mistakes by RBI. Govt has nothing to so with printing. Please stop false defamation. If I am wrong, please share your source :)
                                        Reply
                                        1. G
                                          GD
                                          Nov 30, 2016 at 6:06 pm
                                          If 90 to 95% percent of the old currency is projected to return to the banks, it's obvious that the costs of this exercise outweighs the benefits.lt;br/gt;lt;br/gt;I hope 10 to 15% of the informal sector moves to digital transactions, so that the GDP for this year will not be impacted much.lt;br/gt;lt;br/gt;But the psyche of the average consumer towards the central bank has changed. I hope the sancy of it's autonomy is restored and we do ultimately have a governor who can ensure the same
                                          Reply
                                          1. I
                                            Indianajones
                                            Nov 30, 2016 at 1:53 am
                                            After reading the article, the question in mind is, what have we accepted?
                                            Reply
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