On 22nd January, 2014, RBI issued advisory that after March 31, 2014, it will completely withdraw from circulation all banknotes issued prior to 2005. From April 1, 2014, the public will be required to approach banks for exchanging these notes. The circular also advises that banks are required to exchange the notes for their customers as well as for non-customers. From July 01, 2014, however, to exchange more than 10 pieces of Rs.500 and Rs.1000 notes, non-customers will have to furnish proof of identity and residence to the bank branch in which she/he wants to exchange the notes.
On 24th January, 2014, issued further clarification and advised the banks that the members of public may initiate the process of exchanging notes at bank branches at their convenience. Further, even July 1, 2014 onwards, members of public can exchange any number of these old series notes from the bank branches where they have their accounts. Thus, what I can make out of this means (also see the discussions below) :-
(a) From 1st April, 2014 to 30th June, 2014, the banks are required to exchange the old series notes from customers and non customers;
(b) From 1st July, 2014, banks will exchange old series notes without any limit and without any enquires for their customers any without forcing them to deposit such amount in their accounts.
(c) From 1st July, 2014, banks will exchange old series notes without any limit for denominations upto Rs 100/-. In case of currency notes of Rs 500/- and Rs 1000/-, they will not enquire anything even from non customers provided be comes to exchange only upto 10 pieces of such notes. For exchange of more than 10 pieces of currency notes of Rs 500/- and Rs1000/- by non customers, they will have to furnish proof of identity and residence to the bank.
(d) RBI in its circulars has reiterated that the notes printed prior to 2005 will continue to be legal tender.
The above guidelines seems to have been issued by RBI with good intensions and rationale given by RBI in its above circular is that old series currency notes "have fewer security features compared to banknotes printed after 2005. It is standard international practice to withdraw old series notes".
However, a reading of the above circulars and discussions in the media has created lot of confusion among the public and soon the wrath of public may be seen at banks and bankers are likely to face music for the same. Although, RBI has tried to clarify yet some of the issues which needs to be clarified by RBI are :-
(i) Whether bankers on cash payments from 27th January, 2014 onwards can pay old series bank notes on the plea that the process will start from 1st April, 2014. Similarly, whether banks can continue fill up their ATMs with old series notes without bothering that the people withdrawing money have to again rush to bank for exchange of such notes;
(ii) On the one hand RBI says that rationale behind bringing this scheme is to withdraw old series notes with lesser security features, but in the same breath it asks banks to take the proof of identity and residence from non customers after 1st July, 2014. This gives an impression as if RBI wants to track such customers;
(iii) There may be lot of cases where a customer or non customer comes for exchange of large amount (say Rs 9 lakhs ) on a daily basis, even before 1st April or upto 30th June, 2014. Whether in such a case a banker should ask the person to provide him any details in case he is a non customer. Whether cashier exchanging such notes should note down all the details for the customers. In case such details are not taken on first day and he appears with Rs 9 lakh on second day too, what will be trace that he deposited beyond Rs 10 lakhs. Whether such transactions are to be reported to FIU? Even if PAN number is given, it can be fake or of a person who has not come for exchanging the notes.
(iv) Whether all banks are compulsorily under obligation to exchange all the notes tendered inspite of the fact that branch does not have the cash limits as per their internal guidelines.
RBI needs to issue clarification on above issues so that there is a uniformity among banks and bankers are not put to unnecessary moral dilemma and later on enquiries for not following the guidelines.
In the meantime, bankers should adhere to the present guidelines :-
(a) Obtain PAN for any cash transaction of above Rs50,000/-
(b) Any transaction above Rs 10 lakh should be reported without fail to the Financial Intelligence Unit (FIU) under the Prevention of Money Laundering Act;
(c) Obtain information from customers / non customers for exchange of old series currency notes as per the guidelines to be received by branches from their respective HOs.
Everybody knows India has huge stocks of black money and a good percentage of the same is likely to be of old series currency notes. I am sure soon bankers will be under lot of dilemma resulting in fresh stress on the issue of exchange of old currency notes, Branch managers, head cashiers are likely to face maximum dilemma in such cases. Corporate customers with huge black money stocks will certainly try to pressurize their bank Managers and Head Cashiers to exchange such notes without any entries in the bank books. They will like that all such money is exchanged with post 2005 currency without leaving a trace as to who got these exchanged.
Moreover, people with hoards of black money are likely to convert the same into gold by paying the jewelers cash in the shape of old currency notes. Thus, either cash deposits from jewelers or percentage of old series currency notes from them may see sharp surge in the branches with accounts of jewellers. It will be a great challenge for the bankers whether to report such transactions and / or increase in old series currency notes. They will be under moral dilemma as to, whether fully knowing well that amount tendered is a black money and depositor does not want to share any personal details, agree to exchange the same under pressure of Manager or Zonal Managers etc.
I feel this is a great move by RBI provided they issue certain clarification. RBI must issue further clarifications so that bankers do not face such moral dilemma. In the meantime, I feel, all banks should take the following steps immediately:-
(i) All currency chests should ensure that no pre-2005 note is sent to any of the branches;
(ii) All currency chests must have systems put in place to immediately lift the pre-2005 currency notes so that branches do not face the dilemma of over stocking cash resulting in breach of cash limits;
(iii) Currency chests must issue the detailed guidelines as to the information to be obtained / not to be obtained for exchange of pre-2005 currency notes;
(iv) All bank branches should ensure that in all ATMs, only the currency notes of post-2005 are kept;
(v) All bank branches to ensure that customers withdrawing cash are given only post-2005 notes;
I feel if above steps are taken, there will be smooth transition for withdrawal of pre-2005 currency notes, and there will be lessor fights between bank employees and customers
However, I personally feel the following guidelines would have helped in weeding out at least some portion of the black money. This would have also met the goals for financial inclusion :-
(a) Every customer should be allowed to deposit, without any limit, all the old series currency notes in his / her account upto 30th June, 2014;
(b) In case a non customer comes to exchange currency notes of Rs100 and above denominations and with a value exceeding Rs10,000/- but below Rs 50,000/- should be asked to give an undertaking that he does not have any account with any bank and has not exchanged such notes on earlier occasion, and be asked to provide proof of identity and proof of address, and allowed to exchange such notes;
(3) In case a person comes to exchange old series currency notes beyond Rs 50,,000/- he / she should be asked to open a bank account and deposit the same in the bank. This would widen the banking network as is being envisaged by RBI / GoI under financial inclusion;
(4) There should not be any restrictions on exchange of old series currency notes below Rs 100/- denominations.
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