 "A closed ICICI Bank branch in Kolkata on account of demonetisation (Pic: Subrata Majumder)")
On Thursday as the banks reopen for business, they will face a massive rush from customers to open their lockers. In metros or in small towns bankers have had a variety of tales about the rush to own a locker—there could be queues to dip into these lockers as soon as the banks open their premises for business. Precious metals yes, but cash was equally in demand. Tax sleuths had known this fact for a long time, but it is now like the moment of revelation.
Be that as it may, post the Tuesday night announcement of demonetisation of Rs 500 and Rs 1,000 currency notes, the onus has now clearly shifted to the banking system to ensure compliance. Sources in the department of financial services whom one talked to this morning said they have moved to warn banks, the first thing today.
The risk, as they explained, is about those with loads of suddenly useless stack of currency notes going on a branch shopping. And particularly vulnerable in this respect are the bank branches in smaller towns. The level of monitoring is far less there despite the risk of video cameras and so on. Since anybody can make a deposit at any branch of his bank, this is a real possibility. There are two possible modus operandi, as one of the sources said. Either the branch manager relaxes the KYC norms to let in deposits of above Rs 50,000 in high currency notes or eases up on the norms for not letting in third parties file deposits on behalf of some one who prefers to be in the background. Even in urban areas, how the banks guide their clients to eliminate their cash in lockers to legitimate deposits in the ledgers will be important to track, at this stage.
As per RBI data, currency with the public is close to 13% of the total money stock in circulation, at any point. Of this, Rs 500 and Rs 1,000 make up the bulk. Even unaccounted cash or black money is part of this percentage. “Till next March as people cough up those deposits with banks, this percentage should come down," says N Bhanumurthy, professor, at National Institute of Public Finance and Policy. Correspondingly, the deposits in the banking system, current or time deposits, would increase.
How banks manage this transition would determine to a large extent how the government’s big bang announcement of demonetisation would pan out.
