Demonetization of ₹ 500 and ₹ 1000 notes

[CA DEV KUMAR KOTHARI]

Answers by RBI as Frequently Asked Questions (FAQs) on Withdrawal of Legal Tender Character of the Old High Denomination Bank Notes – analysis and observations by CA Dev Kumar Kothari From FAQs on website of RBI with highlights added for analysis Observations of author 1. Why is this scheme? The incidence of fake Indian currency notes in higher denomination has increased. For ordinary persons, the fake notes look similar to genuine notes, even though no security feature has been copied. The fake notes are used for antinational and illegal activities. High denomination notes have been misused by terrorists and for hoarding black money. India remains a cash based economy hence the circulation of Fake Indian Currency Notes continues to be a menace. In order to contain the rising incidence of fake notes and black money, the scheme to withdraw has been introduced.   In view of depreciated value of Rupee, notes of ₹ 500/- cannot be regarded a high value note. This is evident that even if we withdraw ₹ 1000/- from ATM 80% probability is that we will get two notes of ₹ 500/- or least chances are of getting notes of ₹ 100/- Even in case of withdrawal of 10K, 15K, 20K chances are that hardly ₹ 500 or at most ₹ 1000/- will be in notes of ₹ 100/- Black money generation due to bribes will not stop, corrupt officers will ask bribes in new currency or gold.  2. What is this scheme? The legal tender character of the notes in denominations of ₹ 500 and ₹ 1000 stands withdrawn. In consequence thereof withdrawn old high denomination (OHD) notes cannot be used for transacting business and/or store of value for future usage. The OHD notes can be exchanged for value at any of the 19 offices of the Reserve Bank of India or at any of the bank branches or at any Head Post Office or Sub-Post Office. So far declared / accounted money is concerned, there should not be a question mark while depositing into bank or exchange of notes.   3. How much value will I get? You will get value for the entire volume of notes tendered at the bank branches / RBI offices. Full value will be received/ credited 4. Can I get all in cash? No. You will get upto ₹4000 per person in cash irrespective of the size of tender and anything over and above that will be receivable by way of credit to bank account.   Rs.4000/- in cash is very small at least ₹ 20000/- must be fixed limit. Otherwise there will be many transactions of deposit and then withdrawals. 5. Why I cannot get the entire amount in cash when I have surrendered everything in cash? The Scheme of withdrawal of old high denomination(OHD) notes does not provide for it, given its objectives. After deposit of OHD cash withdrawal  in notes other than OHD should be allowed.   6. ₹4000 cash is insufficient for my need. What to do? You can use balances in bank accounts to pay for other requirements by cheque or through electronic means of payments such as Internet banking, mobile wallets, IMPS, credit/debit cards etc. Why one should not be allowed to withdraw money in his account? And insisted to use electronic means. 7. What if I don’t have any bank account?  You can always open a bank account by approaching a bank branch with necessary documents required for fulfilling the KYC requirements. There must be relaxation up to ₹ 20K and more in case of justifiable reasons to change OHD into other notes. 8. What if, if I have only JDY account? A JDY account holder can avail the exchange facility subject to the caps and other laid down limits in accord with norms and procedures. Up gradation of JDY account should be allowed on compliance of relevant KYC and other criterion. 9. Where can I go to exchange the notes? The exchange facility is available at all Issue Offices of RBI and branches of commercial banks/RRBS/UCBs/State Co-op banks or at any Head Post Office or Sub-Post Office. RBI and almost all banks and their branches are supposed to extend facility. 10. Need I go to my bank branch only? For exchange upto 4000 in cash you may go to any bank branch with valid identity proof. For exchange over 4000, which will be accorded through credit to Bank account only, you may go to the branch where you have an account or to any other branch of the same bank. In case you want to go to a branch of any other bank where you are not maintaining an account, you will have to furnish valid identity proof and bank account details required for electronic fund transfer to your account. The limit of ₹ 4000/- is very low. For emergency cases higher limits should have been allowed. 11. Can I go to any branch of my bank? Yes you can go to any branch of your bank. Even in usual course some banks are reluctant to work for other branch of the same bank. 12. Can I go to any branch of any other bank? Yes, you can go to any branch of any other bank. In that case you have to furnish valid identity proof for exchange in cash; both valid identity proof and bank account details will be required for electronic fund transfer in case the amount to be exchanged exceeds ₹4000. Other banks  and even other branches are likely to be reluctant. 13. I have no account but my relative / friend has an account, can I get my notes exchanged into that account? Yes, you can do that if the account holder relative/friend etc gives you permission in writing. While exchanging, you should provide to the bank, evidence of permission given by the account holder and your valid identity proof. Use of account of others is acceptable, however it can create confusions, doubts for  both persons and transactions may require more clarifications – avoided so far possible. 14. Should I go to bank personally or can I send the notes through my representative? Personal visit to the branch is preferable. In case it is not possible for you to visit the branch you may send your representative with an express mandate i.e. a written authorisation. The representative should produce authority letter and his / her valid identity proof while tendering the notes. Without personal visit, and at home branch it seems difficult to get work done. 15. Can I withdraw from ATM? It may take a while for the banks to recalibrate their ATMs. Once the ATMs are functional, you can withdraw from ATMs upto a maximum of ₹2,000/- per card per day upto 18th November, 2016. The limit will be raised to ₹4000/- per day per card from 19th November 2016 onwards. There should not be limit for withdrawals against old deposits in account or credit facility available on credit card for cash withdrawal- cash limit. 16. Can I withdraw cash against cheque? Yes, you can withdraw cash against withdrawal slip or cheque subject to ceiling of ₹10,000/- in a day within an overall limit of ₹20,000/- in a week (including withdrawals from ATMs) for the first fortnight i.e. up to 24th November 2016. There should not be limit for withdrawals against old deposits in account. 17. Can I deposit withdrawn notes through ATMs, Cash Deposit Machine or cash Recycler? Yes, OHD notes can be deposited in Cash Deposits machines / Cash Recyclers.   18. Can I make use of electronic (NEFT/RTGS /IMPS/ Internet Banking / Mobile banking etc.) mode? You can use NEFT/RTGS/IMPS/Internet Banking/Mobile Banking or any other electronic/ non-cash mode of payment.   19. How much time do I have to exchange the notes? The scheme closes on 30th December 2016. The OHD banknotes can be exchanged at branches of commercial banks, Regional Rural Banks, Urban Cooperative banks, State Cooperative Banks and RBI till 30th December 2016. For those who are unable to exchange their Old High Denomination Banknotes on or before December 30, 2016, an opportunity will be given to them to do so at specified offices of the RBI, along with necessary documentation as may be specified by the Reserve Bank of India. Remember last date to exchange OHD notes by 30.12.2016.   Later on only at RBI on satisfaction of further requirements OHD notes will be changed the process will be complicated to ensure safety and security measures to avoid misuse. 20. I am right now not in India, what should I do? If you have OHD banknotes in India, you may authorise in writing enabling another person in India to deposit the notes into your bank account. The person so authorised has to come to the bank branch with the OHD banknotes, the authority letter given by you and a valid identity proof (Valid Identity proof is any of the following: Aadhaar Card, Driving License, Voter ID Card, Pass Port, NREGA Card, PAN Card, Identity Card Issued by Government Department, Public Sector Unit to its Staff) Authorised person must carry identity proof and authority letter. 21. I am an NRI and hold NRO account, can the exchange value be deposited in my account? Yes, you can deposit the OHD banknotes to your NRO account. NRO a/c is just like other bank a/c 22. I am a foreign tourist, I have these notes. What should I do? You can purchase foreign exchange equivalent to ₹5000 using these OHD notes at airport exchange counters within 72 hours after the notification, provided you present proof of purchasing the OHD notes.   23. I have emergency needs of cash (hospitalisation, travel, life saving medicines) then what I should do? You can use the OHD notes for paying for your hospitalisation charges at government hospitals, for purchasing bus tickets at government bus stands for travel by state government or state PSU buses, train tickets at railway stations, and air tickets at airports, within 72 hours after the notification. NO relaxation for payment at private hospitals, private buses etc. 24. What is proof of identity? Valid Identity proof is any of the following: Aadhaar Card, Driving License, Voter ID Card, Pass Port, NREGA Card, PAN Card, Identity Card Issued by Government Department, Public Sector Unit to its Staff. Usual identity proof. 25. Where can I get more information on this scheme? Further information is available at our website (www.rbi.org.in) and GoI website (www.rbi.org.in)   26. If I have a problem, whom should I approach? You may approach the control room of RBI by email or on Telephone Nos 022 22602201/022 22602944 Email  id has not been mentioned. How far helpline phone will be helpful and useful , will be seen on experience in this regard after we phone. FAQ’s do not include business related aspects: The FAQ are mainly oriented towards needs of individuals for personal needs. Business needs of shop keepers, traders, industries, service providers, even farmers and their adhatiyas (agents)  etc. has not been addressed to in these FAQ’s.

Business difficulties have not been considered. For example, some of difficulties are as follows: Cash sale proceeds by wholesalers and retailers – how to be deposited with so many limits and restrictions. At a very low level of operations we find that even a vegetable and fruit vendor and even a pan shop has collection at the end of day he may be holding 3000- 7000 or more in currency notes of ₹ 500/- and 1000/- which he use for purchasing goods on next day for resell. Many times we notice that many customers of such shops exchange ₹ 500/- and ₹ 1000/- notes (withdrawn from ATM) with small denomination notes of ₹ 100/- ,50/- , 20/-, 10/- etc. for meeting petty expenses. Similarly even a taxi driver can be holding about ₹ 2000/- to 3000/- which he use for refilling diesel and making payment to taxi owner or repayment of loan etc. In case of shops cash sale is common and sizable amount of cash in notes of ₹ 500/- and ₹ 1000/- are collected and the same is deposited in banks daily or periodically for making payment to supplier. These shop keepers will have lot of difficulty. Cash withdrawn for salary and wage payment: Many organizations have pay day on or around 10th of each month. Many of their employees do not have bank account. There will be many cases of cash withdrawn for such purposes. They will face difficulty. Farmers: Farmers sell their produce and get cash payment which they use for paying goods required for farming. They will also face difficulty. House hold expenses: 1 -8th day of any month is crucial for cash withdrawn for meeting family expenses. Salary payment is usually made between this period. If salary is deposited in bank account, one need to withdraw cash to meet family expenses. This includes payables to domestic helps, gardeners, drivers, sweepers, car cleaner , Dhobi-cloth -washer man – cloth iron man. There will be hardship in such payments.

Discontinuation of both ₹ 500/- and ₹ 1000/- at the same time was not justified: Rs.500/- is much less in value these days for making many of payments. The ground reality is that when cash is withdrawn from ATM ₹ 500/- is most popular currency. If one withdraw ₹ 10000/- the chance is that ₹ 9500/- will be in ₹ 500/- and 1000/- and only ₹ 500/- will be in notes of ₹ 100/- Therefore, people who withdraw money through ATM have to obtain lower denomination notes from others and they plan in a way that large denomination note is given and some small denomination notes are received back to meet petty expenses.

Curb on corruption is difficult- power to harass must be curtailed: By rendering old currency notes, it is not difficult to curb corruption. Corruption is due to greed and power to harass by anyone who can exercise discretisation. Corruption in government departments is well recognized. Even  in older days of Munshi Premchand, we find mention of upari kamai. And in stories like Namak Ka Daroga also the proportion of bribe was much higher than salary. Bribe could be many times more than even annual salary. There is no change. Grapevine is  that still proportion of bribes is much higher than salary of corrupt officers who can exercise powers in an unreasonable manner and harass public. Cash found in raids by CBI, anti-corruption departments, lokayaukt and similar authorities at premises of corrupt officers are just indications and are tip of iceberg. Public is in fear that corrupt officers who have lost value of money due to demonetization of  currency are likely to make-up loss by collection of higher bribes. Public grapevine is that during last few years rates of bribe being demanded has gone up considerably. https://www.rbi.org.in/scripts/images/RS2000.jpg https://www.rbi.org.in/scripts/images/RS500.jpg