99% of banned notes returned after demonetisation: RBI annual report

99% of banned notes returned after demonetisation: RBI annual report

The Reserve Bank of India (RBI) on Wednesday said it estimated that people had returned almost 99 per cent of the scrapped Rs 1,000 and Rs 500 notes after demonetisation, effectively putting a question mark over the government gaining handsomely by the unreturned money turning into a special dividend by the central bank.

In its annual report, the RBI also said the face value of fake high-value notes was minuscule at Rs 41 crore.

The central bank said people had returned Rs 15.28 lakh crore of the Rs 15.44 lakh banned currency, or 98.96 per cent of the scrapped Rs 500 and Rs 1,000 notes, to the banking system.

“Subject to future corrections based on the verification process when completed, the estimated value of Specified Bank Notes received as on June 30, 2017, is Rs 15.28 lakh crore,” the annual report said. 

The old notes came to the RBI either directly or from bank branches and post offices through the currency chest mechanism.

Some of these notes were still lying in currency chests, the RBI said, adding it could only estimate the value of the notes and could not provide an accurate figure.

The RBI data showed the unreturned Rs 1,000 notes in March 2017 amounted to Rs 8,900 crore. The segregation of old and new Rs 500 notes were not that clear. The RBI incurred a cost of Rs 7,965 crore in printing notes in 2016-17, against Rs 3,421 crore incurred in the previous year. The central bank also increased its provisions by over Rs 13,000 crore in order to boost its contingency reserves, a practice it was adopting after three financial years.

The net effect was that the dividend paid to the government was halved to Rs 30,659 crore in the July-June financial year 2016-17. Prime Minister Narendra Modi had on November 8, 2016, announced demonetisation in a televised address, rendering 86 per cent of the currency in circulation invalid. The nation subsequently queued up at bank branches and automated teller machines as the central bank struggled to supply new notes. About Rs 15.3 lakh crore of notes are in circulation in June, against the pre-demonetisation level of Rs 17.9 lakh crore. Economists said the government may have overestimated the extent of black money in the system, but increased tax collection should be counted as a long-term gain.

“Data analytics of deposits have thrown up unusual patterns. Previously we did not know who held black money. Now we do, and this is a clear gain,” said the chief economist with a private bank. The number of suspicious transaction reports by banking system increased by 345 per cent, which could possibly lead to an increase in future tax revenues. Coupled with the goods and services tax, this will help in improving tax realisation,” said Soumya Kanti Ghosh, group chief economist, State Bank of India.

The total number of suspicious transactions detected in 2016-17 was 473,003, up from 106,273 in 2015-16 across banks, other financial institutions and intermediaries . In banks alone, the number of suspicious transactions detected was 361,214, against 61,361 a year ago.

This is the first time since 1952-53 that reserve money for the whole year contracted, by 13 per cent. The RBI incurred a loss in seigniorage, the profit made by the central bank on account of currency issuance.A committee headed by the RBI board member Y H Malegam had suggested the central bank did not need to build additional reserves for three years starting 2012-13. This being the fourth financial year, the RBI increased its provisions to Rs 13,190 crore and allocated them in various reserves. “In value terms, the share of Rs 500 and above banknotes, which had together accounted for 86.4 per cent of the total value of banknotes in circulation at end-March 2016, stood at 73.4 per cent at end-March 2017. The share of newly introduced Rs 2,000 banknotes in the total value of banknotes in circulation was 50.2 per cent at end-March 2017,” the RBI said. 

In volume terms, Rs 10 and Rs 100 banknotes constituted 62 per cent of the total banknotes in circulation at end-March 2017, against 53.0 per cent at end-March 2016.

The RBI said  processing and destruction of old Rs 500 and Rs 1,000 notes kept in various currency chests and regional offices of the RBI “pose a challenge.”

“In this regard, the agenda for 2017-18 includes the procurement of Currency Verification and Processing System/Shredding and Briquetting Systems.”  The RBI’s agenda also include introduction of new series banknotes in other denominations; procurement of security features; and “introduction of varnished banknotes.

The Business Standard, New Delhi, 31st August 2017