RBI meddling with public trust

RBI meddling with public trust

This refers to the report “You have only one chance to deposit scrapped notes worth over Rs 5,000” (The Hindu Business Line, December 20). Reserve Bank of India circular* dated December 19, 2016  on deposit of Specified Bank Notes(SBNs) issued to banks can impair the public trust in the banking system in general and in the RBI as the institution statutorily responsible for Currency Management in particular. Consequent to the withdrawal of ‘legal tender’ status of Rs500 and Rs1000 currency notes on November 8, 2016, GOI and RBI have issued and implemented various restrictions on deposits and withdrawals of money, many of them for administrative reasons.

By and large, despite political provocations, citizens accepted the measures conceding the broader objectives of fighting corruption, black money and fake currency in the system. Remember, GOI has not yet withdrawn the RBI promise to pay value, backed by government guarantee which made SBNs currency notes in the first place.

The instructions now issued, restricting deposits to just once, giving discretion to bank officials to accept/reject deposits of SBNs and re-routing such deposits compulsorily to deposits under the Taxation and Investment Regime for the Pradhan Mantri Garib Kalyan Yojana, 2016 smacks arbitrariness. If someone alleges that RBI is acting under ‘instructions’ from GOI to ‘promote’ fund raising, the allegation may stick on the central bank.

Such casual approach to Currency Management can impair the public trust not only in the central bank but in the banking system, which can have long term implications for the economy.

M G Warrier, Mumbai   

*Clauses i to v of RBI Circular** dated December 19, 2016 copied below:

i Tenders of  SBNs in excess of 5000 into a bank account  will be received for  credit  only once during the remaining period till December 30, 2016. The credit in  such cases  shall be afforded only after questioning  tenderer,  on record, in the  presence of at least two officials of the bank , as to  why this could not be  deposited earlier and receiving a satisfactory explanation. The  explanation should be kept on  record to facilitate an  audit trail at a later stage. An appropriate flag also should be  raised in CBS to that effect so that no more tenders are allowed.

ii. Tenders of SBNs up to 5000 in  value received across the counter will

allowed to  be  credited to  bank accounts in the normal course  until December 30, 2016.  Even  when  tenders smaller than 5000 are made in an account and such tenders taken  together on cumulative basis exceed 5000  they may be subject to the procedure  to be followed in  case of  tenders above 5000, with no more tenders being allowed thereafter until December 30, 2016.

iii. It may also be ensured that full value of tenders of SBNs in excess of

5000 shall be  credited to only KYC compliant accounts and if the accounts are not  KYC compliant credits may be restricted up  to 50,000 subject to the conditions governing the conduct of such accounts.

iv. The above restrictions shall not apply to tenders of SBNs for the purpose of deposits under the Taxation and Investment Regime for the Pradhan Mantri Garib Kalyan Yojana, 2016.

v. The equivalent value of specified bank notes tendered may be credited to an account  maintained by the tenderer at any bank in accordance with standard banking  procedure and on production of valid proof of Identity.

**Clauses i and ii were made ineffective through another circular issued by RBI on December 21, 2016. Practically, the December 19 circular was withdrawn by RBI.