Demonization – Bankers’ point of view! – Part 1

What did Indian bankers have to endure during demonetization, which was probably India’s biggest money exchange program! Find out here.
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Demonetization shook our country much worse than a tsunami of epic proportions!

It was a good intent move, but turned out horribly wrong, especially for the bankers of our country. There was chaos everywhere! People were grappling to exchange their old demonetized notes that had become pieces of paper and bankers plummeted overnight to the ranks of mere money exchangers!

From the branch managers to the peon in a bank – everyone was concerned about how to handle the thousands of people lining up in front of them to exchange their invalidated notes! What chaos!

At the 20th Lalit Doshi Memorial Lecture, ex-RBI Governor Dr. Raghuram Rajan made a very telling speech on the aftermath of the demonetization drive called “Finance and Opportunity in India”. He opined, “I am not quite sure if what you meant is demonetize the old notes and introduce new notes instead. In the past, demonetization has been thought off as a way of getting black money out of circulation. Because people then have to come and say “how do I have this ten crores in cash sitting in my safe” and they have to explain where they got the money from. It is often cited as a solution. Unfortunately, my sense is the clever find ways around it. They find ways to divide up their hoard into many smaller pieces. You do find that people who haven’t thought of a way to convert black to white, throw it into the Hundi in some temples. I think there are ways around demonetization. It is not that easy to flush out the black money. Of course, a fair amount may be in the form of gold, therefore even harder to catch. I would focus more on the incentives to generate and retain black money.”

As you can see, Rajan clearly disses this move as a lost cause. He believes that wrongdoers will find new ways to hoard black money and that this exercise was a massive waste of public time and money. Yup, this sudden move wasn’t his doing. It was newly appointed RBI governor Urjit R. Patel who got embroiled in a political tussle between the Congress and the BJP over black money and benami properties.

Here are facts about demonetization that will make you understand why this exercise was a massive pain for the bankers:

  • Except for the Finance Minister and the top officials of the RBI, no one even had a hint of this activity that was being planned for over since 6 months! The top bankers of the nation were not alerted in any way. It was a sudden decision which made the task of exchanging notes altogether cumbersome due to lack of infrastructure and banking staff.


  • The government seemed well-prepared to handle the situation because they thought that since they had got most of the unbanked sector into the banking ecosystem with the Jan Dhan Yojana and Rupay Cards, the process of exchanging notes may run smoothly, but they forgot to estimate the kind of black money people were hoarding. Banks didn’t even have proper note counting machines until a few weeks into demonetization to count the trillions of cash being exchanged within a mere 1 and a half month deadline (10 November to 31 December).


  • The Income Declaration Scheme (IDS) didn’t work its magic initially because the help of banks was not taken until demonetization was over to analyze accounts that did exchanges in excess of R. 2 lakh. The IDS was done twice before demonetization was announced, but the government failed to track down such black money hoarders because there was no proper linkage between the Income Tax officials and top-level bankers of the country. The Aadhaar linkage to bank accounts is still not mandatory, which is why this problem became even more problematic. Had Aadhaar’s been linked to all accounts, it would have been easier to locate PAN details for each bank account holder.


  • Experts initially said that by December 30, practically the entire stock of old bank notes had been deposited, but later it was revealed by the RBI that 1% of the demonetized notes is still out there. When this happened, the Modi government changed its stance from curbing black money to promoting a cashless economy of digital transactions for the demonetization drive. No one ever got the Rs. 15 lakh they were promised as part of the drive to bring back black money. No wonder BJP is called a ‘jumla ki sarkar’ or government of fake promises which made bankers suffer.



Coming on to a cashless society, many bankers have lost their jobs to demonetization. Since digital transactions are automated, human intervention is now minimal. This is a major reason why there are very few government job announcements in the banking sector. Digitization is eating into the jobs of bankers!


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