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Note ban: Banks the weak link

  By Vijay Darda | 12-12-2016

In the one month after Prime Minister Narendra Modi’s decision to withdraw Rs 500 and Rs 1000 currency notes, it has become increasingly clear that the banks are the weakest link in the demonetisation chain. We have been told of the hard work that the bank employees have put in beyond the call of their regular duty to manage the surging crowds after the cash crunch. This is praiseworthy. But we cannot overlook the reality that there is a segment of the bank employees that has seen this demonetisation process as an opportunity to make a quick buck.

The facts speak for themselves. The weekly limit of withdrawal from a savings account is Rs 24,000 and even this amount is often refused by banks on the basis of the argument that they have to ration cash withdrawals to serve all the customers. Small businesses can withdraw Rs 50,000 per week from their current accounts. But since November 10, there have been 44 cases in which a sum of Rs 64.97 crores has been recovered in the new Rs 2000 currency notes from corrupt officials and hawala dealers. The new currency is being channelled through banks. Obviously, these amounts in crores have not come to these corrupt officials after standing in serpentine queues in front of banks. There is a widespread connivance of bank officials in allowing such a huge amount get into the hands of corrupt people, who have been caught with their hand in the till.

The raids by the Enforcement Directorate in 50 branches across 10 banks in one city Kolkata to uncover the money laundering activities that have taken place in the post-demonetisation days, tell their own story. All these branches have received huge deposits, in some cases even touching up to Rs 3 crores. Another raid by the Income Tax department in one of the branches of one of the country’s largest private sector bank Axis found that Rs 100 crores had been deposited in 44 fake accounts. The bank had to suspend 19 officials linked with this fraud.

According to market sources, the going rate for converting the unaccounted banned currency into a legitimate bank account is about 20-30 per cent. For those whose black money hoarding is not above Rs 10 crores – like doctors, professionals (who have to accept a part of their fees in cash as a matter of necessity) – this kind of money laundering is possible only with the help of friendly bank officials. Indeed, this is the only segment of the population that is thrilled by the note ban decision, as it has got an opportunity to convert its unaccounted money at such a low cost.

But this aspect of the exercise defeats the second purpose of demonetisation – ending corruption, as there is strong evidence that within less than a month itself the authorities could uncover unaccounted cash in new currency worth Rs 65 crores. This also proves the contention of the critics of demonetisation that holding black money in Rs 2000 notes is easier than the old Rs 500 and Rs 1000 notes.

With regard to banks, it has to be emphasised that they are not only the repository of our money, but also our trust. In each of the cases where the bank officials have agreed to be part of deals that have seen huge amounts of cash in new currency get into the hands of their partners in crime, they have not only violated the law but also betrayed the trusts of the thousands of their customers who queued up at their doorsteps.

Even as the nation grapples with the aftermath of the note ban decision, it is surprising to hear Prime Minister Narendra Modi saying that he is not being allowed to speak in the Parliament. Indeed, it is a shocker coming from a prime minister who commands an absolute majority in the Lok Sabha. Even without the kind of numbers the government has, the prime minister can speak at any time of his choosing in any House. This is also applicable to the Rajya Sabha, even though the government does not have a majority in this House. It is clear that if the prime minister has not spoken in the Parliament so far, then it is his decision, the Opposition can hardly be blamed for it.

The logjam in the winter session of Parliament is likely to ensure a complete washout. The daily spectacle of noisy disruptions on the television screens presents an unwelcome picture of our democracy and it has rightly riled two senior statesmen – President Pranab Mukherjee and the BJP patriarch Lal Krishna Advani. They have made rich contributions to the parliamentary traditions and their anguish is genuine and understandable.

In Advani’s case his grievance appeared to be directed against the speaker and the parliamentary affairs minister – the two people whose job is to see that the House functions. For Pranabda, the opposition has to shoulder a larger share of the blame. But the problem in this case relates to a political reality. After all, the Parliament is the place where the extended political battle is fought and in this respect both the Congress and the BJP have adopted the same disruptive tactics when in opposition. For ten years during the UPA-I and UPA-II rule from 2004 to 2014, parliamentary disruption was the norm rather than the exception. Now the Congress seems to be returning the compliment to the BJP in full measure. In both situations, the nation is the loser.

But just as the prime minister’s claim about not being allowed to speak in Parliament is shocking, similarly, it is interesting to hear Congress vice-president Rahul Gandhi assert that there would be tremors that would rock the nation when he speaks in the Parliament. The underlying assumption in the Congress vice-president’s comment is that he has some explosive material about demonetisation. The point is like the prime minister, the Congress vice-president too could have spoken in the Lok Sabha long ago. He need not have issued this threat, instead he should have taken the initiative to restore order in the House and then delivered his speech. Such a move would have enriched parliamentary democracy.

Before I conclude…

There is a critical issue related to the pre-demonetisation phase. It relates to the surge in the bank deposits to the extent of Rs 3.25 lakh crores in the month of September 2016. Neither the finance ministry nor the RBI authorities have been able to explain this surge, and the only explanation that has been forthcoming is that the period coincides with the payment of arrears of the 7th Pay Commission to the government. But the payout on this account is estimated at Rs 50,000 crores. This still is a huge unexplained amount of Rs 2.75 lakh crores. So did someone have a hint about the forthcoming demonetisation? Such questions will liner unless the RBI or the finance ministry comes with a convincing explanation.


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Note ban: Banks the weak link


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