Reserved Bank: Double Trouble may Have Sealed Patel's Lips

Double counting, segregation of banned notes from others may have forced silence

Reserve Bank of India governor Urjit Patel earned the ire of parliamentarians on Wednesday when he declined to disclose the amount of demonetised notes that have been deposited with banks. But there may have been a strong reason for the governor's reticence.
The sheer magnitude of the money-counting exercise and the possibility of double counting may have forced the central bank to be cautious in its assessment, experts and economists said. There is also an issue of segregating the demonetised Rs. 1,000 Rs.500 and ` currency from deposits of notes which are legal tender.

Although December 30 was the final day for depositing old notes in banks, bankers say government entities such as utilities, hospitals, post offices and even district cooperative banks may not have completed the exercise. Nearly 17.165 billion pieces ofRs. 500 denomination and 6.858 billion pieces of Rs.1,000 denomination amounting to Rs.15.4 lakh crore were in circulation.

Also, the window for non-resident Indians to deposit their money with RBI is open till March end. Although the number may be minuscule, the central bank may choose to wait till then to come up with the final figure.

Experts said there were two kinds of issues facing the central bank.One is double counting, which would have occurred at many places such as post offices, petrol pumps and government-run utilities. “What the RBI has done is, it has collected figures from not only the commercial banks but also post offices, district cooperative banks, petrol pumps and what has happened is there is a lot of overlap,“ said Soumya Kanti Ghosh, Group Chief Economic Adviser, State Bank of India.

For instance, the post offices bank with SBI but also report numbers directly with RBI.Since SBI's numbers include post office's money, RBI would have to exclude them to arrive at the correct figure.

There is a similar problem with utilities and petrol pumps, which were allowed to accept old notes. They report details of old notes every day to banks but the actual physical deposits may take time. The RBI's task here would be to find out if the banks have counted these numbers twice. “A petrol pump may have an account with SBI and when that money is deposited, it could be counted twice,“ said Ghosh.

It is not that the RBI has maintained complete secrecy on the amount returned. On December 13, it said Rs 12.44 lakh crore was deposited with banks in high-value currency that were demonetised. In fact, SBI which was releasing daily numbers, stopped after a while fearing double counting.

Also, the delay may be due to the time-consuming process of physical reconciliation and the central bank may want to avoid any dispute in the final number.

Bankers said nearly 95% of the old notes are back into the system.

“On the basis of the number RBI has put out, 95% currency may be back into the system,“ said A Prasanna, Chief Economist at ICICI Securities PD. “Probably, RBI could give a timeline by when they expect to finish physical reconciliation of currency. But I would assume that at least one level of counting and checking has been done by the banking system. So, it is not as if all the money that has returned has to be counted again. It's only where there this is a need to reconcile, they should do it.“

Another issue was when legal tender of old Rs 500 and Rs 1,000 was scrapped, people scrambled to banks to deposit the old notes.But when rules were relaxed for traders and the currency availability improved, a lot of new notes and legal tender in smaller denominations also found its way back to the banks. So, a lot of legal tender got counted in bank deposits.

“The earlier deposits were old notes but later on there were new notes as well, so how do banks make a distinction between the deposits in new and the old notes, that's a difficult task,“ said SBI's Ghosh.

The Economic Times New Delhi,20th January 2017