Close to three weeks after the demonetisation of high value notes, Reserve Bank of India Governor Urjit Patel on Sunday said the RBI is taking the “required decisions to ease the genuine pain of citizens who are honest and have been hurt”. In his first public comments after the withdrawal of Rs 500 and Rs 1,000 notes, Patel said, “the situation is getting better with things stabilising in the metros”, but admitted that remote locations are “still feeling some pain”.
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Patel, who took charge as the RBI Governor on September 5, said “liquidity in the banking system has increased and so credit should be becoming more easily available. The intent is to normalise as soon as possible.”
The government and the RBI changed rules for withdrawal, exchange and deposit of cash several times in the last three weeks. Patel’s silence on the issue attracted a lot of criticism in the last few days.
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The RBI, said Patel, is closely monitoring the situation at the ground level. “There are no precedents on this subject at this scale and we have to be reactive Urjit breaks silence: RBI taking all steps to ‘ease genuine pain’to the situation,” he told PTI in an interview.
He said both the RBI and government have been getting the printing presses to work at capacity to make the new notes available to meet demand. “The RBI is interacting with the banks every day. They are telling us that the situation is gradually easing. The queues in branches and ATMs are shorter, the markets are starting to function, and there are no reported shortages of daily items of consumption,” he said.
“About 40-50,000 people were deployed to refit the ATMs. Currency is available and banks are working in a mission mode to lift currency and take them to their branches and ATMs. The staff members of all banks have worked very hard, and we all owe them our gratitude,” he said.
“This is a once in a lifetime event. It is very rare to remove 86 per cent of the currency in circulation in one go. The logistics of such an operation are mammoth. And yet for withdrawal of legal tender status to be effective, complete secrecy was required. So it is difficult to get all banks ready and fully prepared in 24 hours for a big step like this. Obviously this has caused some dislocation. That is why we request support from all Indians for the larger cause of fighting tax evasion and the black economy,” he said, clarifying the unpreparedness on the part of banks.
Patel said the situation arising out of the demonetisation decision is being monitored on a daily basis and the printing presses have started to rebalance the production of new notes towards Rs 100 and Rs 500 bills.
On the need for demonetisation, he said, “people were holding high denomination notes to keep tax unaccounted for money. Some sectors like real estate were using cash to avoid tax. It also strikes at counterfeit currency and pushes businesses and people to go cashless which greatly increases convenience. Towards the last, banks have waived debit card charges.”
He said the Prime Minister, in his address to the nation, explained why the withdrawal of legal tender status of Rs 1,000 and Rs 500 notes was required. “In his speech, he explained the reasons why this was important. He had given a commitment to the people of India that he would clamp down on black money to bring in much needed transparency and accountability and eradicate counterfeiting,” he said. “This is part of the measures to get people to pay tax and hence expand the tax base,” he added.
Patel also indicated that digital transactions should be given a boost. He urged people to start using cash substitutes like debit cards and digital wallets, saying it would make transactions cheaper and easier, and, in the long term, it would help India “leapfrog into a less cash-use economy at par with more developed nations.”
“We are also urging banks to make a big push with PoS (Point of Sale) machines with traders so that debit card use becomes more prevalent,” he said.
On the new notes, Patel said, “people have asked why the new currency introduced was different in size and thickness from the old. This is because the new currency has been designed to make it hard to counterfeit. When you are going to make a change of this magnitude, you need to get the best standards in place.”
On the RBI move to set 100 per cent incremental CRR on new deposits, Patel said, “this was done because of the large increase in deposits of banks on account of the return of Rs 1,000 and Rs 500 notes. This has led to large excess liquidity in the system. To absorb this liquidity the incremental CRR has had to be used on a purely temporary basis.”
“While the RBI has a significant stock of government securities available, we felt that if the increase in deposits continues we may fall short, hence the decision. Once the government issues adequate quantum of MSS bonds, which they have promised to, we will immediately review the incremental CRR,” he said.