Posted in Banks, Black Money, Common Man, Consumer, Democracy, Financial Institutions, Financial Risk, Government, Hindustan, India, Management Lessons, Politics, RBI, Slogging, System, Victim

Are Financial Institutions considerate enough for moving towards Cash-Less Economy?

Cash-Less Economy results in enormous benefits to the economy, as well as, to the Financial Institutions, and do note that these benefits are not only restricted in monetary terms but rather extend to the managerial and procedural aspect, as well. So, there is no second thought that the Financial Institutions are definitely going to reap long-term benefits flowing from Cash-Less Economy. However, the big question is that are the Financial Institutions considerate enough to help our economy move towards Cash-Less zone or not? Let us discuss this alarming issue in this blog.

When the Government of India (GOI) realized that the Demonetisation step taken at their end would not fetch the expected results, then they very smartly twisted the motive behind demonetisation itself and started pitching it as a step towards Cash-Less Economy. However, regardless of the differences in opinion about the demonetisation step or the reason behind it, one thing could not be denied that moving towards Cash-Less Economy is a good step and it has more of positive sides then the negative sides.

For India, this step towards Cash-Less Economy is a paradigm shift as our economy, as of now, is majorly a cash-dependent economy. If our country seriously wants to reach anywhere near to Cash-Less Economy, then the Finance Sector has to play a critical role in this GOI’s initiative. In fact, the Finance Sector has to be one of the major contributors for this dream to come true. Hence, the Reserve Bank of India (RBI), along with the Financial Institutions has to make a proper framework and gear up for this upside-down situation.

Few months have passed since the first talk about moving towards Cash-Less Economy started in our country. Since then some radical changes have been brought by the GOI, RBI and the Financial Institutions with the very objective of controlling the cash transactions and persuading people to shift towards card and digital payment mode. Now, let us see if the steps taken till date, by the GOI, RBI and the Financial Institutions are actually intended to ‘help’ our country move towards Cash-Less Economy or not.

Some of the key measures adopted by the GOI in this regard are the introduction of Digital Payment App called Bharat Interface for Money (BHIM), providing subsidy (incentive) on digital/card transactions as against cash transactions, levying of penalty of an amount equal to the amount of cash transaction which is over and above Rs. 2,00,000/-, etcetera.

All these measures adopted by the GOI clearly portray the seriousness of the GOI in moving towards Cash-Less Economy. Further, two important motives are reflected from these measures i.e. restriction on cash transactions and “incentivizing” the digital/card transactions. So in my personal view, the GOI has passed the test of “considerate enough” for moving towards Cash-Less Economy.

Now, let us talk about the key measures adopted by the RBI and Financial Institutions in this matter. Herewith, I would like to quote the following lines extracted from my other Blog “Moving towards Cash-Less economy – Was it the right time to take this step?” – “In order to meet the political ambition, the RBI and Banks started working towards the Cash-Less economy. Various guidelines are being issued on a timely basis restricting the number of cash transactions, imposing charges on withdrawal of cash exceeding a specified limit or number of transactions, as well as, imposing penalties on non-maintenance of minimum balance in the saving accounts, etcetera”.

Anyone who goes through the above-mentioned measures “with plane eyes”, will find that all these measures adopted by the RBI and Financial Institutions are an effort towards restricting the usage and flow of cash in our economy. But there is a twist in here. The Financial Institutions have introduced a lot of charges with regard to cash transactions that somewhere it makes me think that whether their motive is only to earn revenue from this opportunity or what?

Mind it, this is not a baseless thought because anyone who compares the measures adopted by the GOI against those introduced by the Financial Institutions can very well vouch that there is a vast difference in their approach. As a general practice, whenever any drastic changes are required to be promoted or implemented in any field, then some incentives are offered to the users so that they get motivated to opt for that change. However, the story is different when it comes to Financial Institution’s approach in this matter.

On one hand, the GOI is providing subsidy (incentive) on digital/card transactions to promote cashless transactions, while on the other hand, the Financial Institutions didn’t even care to reduce their charges on online transactions to such an extent that at least their charges doesn’t exceed the subsidy (incentive) provided by the GOI, so that the customer doesn’t end up paying more amount for any transactions via online mode as compared to the cash payment for similar transactions.

Herewith, I would like to justify my point with the following example – If you book a Liquefied Petroleum Gas (LPG) cylinder via online mode then you will end up paying an amount of more than Rs. 1/- per transaction, as against the payment made in cash and that too when the GOI is providing a subsidy of an amount of Rs. 5/- per transaction. So forget about incentivizing the customers, the Financial Institutions are de-motivating them because the common man wouldn’t like to pay the extra amount on any transaction done via digital/card mode especially at the time when we are still in a nascent stage of digital payment era for the masses.

From the above discussion, it seems that at the time when the Government of India (GOI) is pitching hard towards Cash-Less economy, the Financial Institutions does not seem considerate enough for moving towards Cash-Less Economy rather they are busy filling their pockets by introducing a number of new charges/penalties. Further, this approach of the Financial Institutions is somehow negating the incentives that the GOI is providing to the masses for moving towards Cash-Less Economy.

I do hope that the GOI and RBI take note of this alarming issue and further take necessary steps in this regard so that the Cash-Less Economy does not remain a dream forever. I wish that the Financial Institutions take this opportunity to build a solid framework towards the much-needed destination of our time i.e. Cash-Less Economy and in turn, this process will definitely grant them enough benefits to reap from.

I wish that the Almighty give good sense to each one of us.

Stay in touch.

God bless you all!

Peyush Jain

Posted in Banks, Black Money, Common Man, Consumer, Democracy, Financial Institutions, Financial Risk, Government, Hindustan, India, Management Lessons, Politics, RBI, Slogging, System, Victim

Moving towards the Cash-Less economy – Was it the right time to take this step?

In real terms, the demonetisation step was not able to meet the expected outcome and hence, in order to save their neck, the politicians diverted the talks towards Cash-Less or in their own terms Less-Cash economy. Actually, Cash-less or Less-Cash are one and the same thing the ultimate motive of which is to phase-out cash from any economy. However, considering our current state of the economy which is majorly cash-dependent, the politicians has to refer it as Less-Cash economy, so that it sounds soothing to the ears of a common man and does not result in resistance or chaos in the market.

Indeed there is no harm in moving towards the Cash-Less economy and it has more of positive sides then the negative sides. But herewith, what went wrong is once again “the timing of this step taken”. The common man was already hit hard by the demonetisation monster, wherein the unavailability of cash mercilessly broke the backbone of the common man. On top of this, the ongoing steps taken by the Reserve Bank of India (RBI), as well as, Banks with regard to the Cash-Less economy are not helping in any way; rather it is aggravating the sufferings of the overburdened common man.

In order to meet the political ambition, the RBI and Banks started working towards the Cash-Less economy. Various guidelines are being issued on a timely basis restricting the number of cash transactions, imposing charges on withdrawal of cash exceeding a specified limit or number of transactions, as well as, imposing penalties on non-maintenance of minimum balance in the saving accounts, etcetera. However, RBI and the Banking Sector should have first examined the nerve of the country before opting for such measures, rather than working blindly on the orders of the politicians.

Anyone who attempts to sense the pulse of the common man will surely understand that post-demonetisation step taken by the Government of India (GOI) people are hesitant to keep their hard-earned money with the banks. There is surely a loss of trust among the common men and the two major reasons for this trust loss are –

  1. Firstly the “Trial and Error” methodology adopted by the GOI and RBI during those 50 days of demonetisation.
  2. Secondly, people were unable to withdraw “their own money” even within the prescribed limit set by the GOI and RBI.

This is the ground reality which can be vouched by anyone with a sane mind, but the prerequisite is that they need to step out from their air-conditioned offices and keep themselves grounded. In such a situation, the first and foremost thing that was required to be done “on priority” by the RBI, as well as, the banking sector as a whole, was to build the trust once again among the masses. However, they acted exactly in the opposite manner and started imposing a lot of restrictions on cash transactions. At the time when comfort was needed, what the common man got was a load of restrictions on their head.

Now, it’s for the Management and the Think Tank of RBI and Banks to evaluate and decide whether this was the right time to pitch the measures of the Cash-Less economy or not, especially in the light of sufferings of the common man. Mind it the availability of cash is not adequate still in the rural and interior areas. And here the country has to face restrictions on cash transactions. Wouldn’t it have been prudent if the Cash-Less economy was taken as an altogether new project “at an appropriate time” instead of a residual measure to save the neck of a few people? Do they have an answer to this question? I guess ‘No’.

Now, I would like to end this blog with the very hope that may the trust of common man always remain intact in our financial sector, especially the banks because they are one of the important pillars of any economy. I do wish that the respected and trusted organisations of our country always have the freedom to work with a free spirit, keeping in mind the larger interest of the society as a whole.

I wish that the Almighty give good sense to each one of us.

God bless you all!

 

Peyush Jain

Posted in Banks, Black Money, CCTV, Common Man, Corruption, Democracy, Financial Institutions, Financial Risk, Frauds, Hindustan, India, Investigation Agencies, Management Lessons, RBI, Slogging, System, Terrorism, Terrorist, Victim, Whistle Blower

Frauds in Banks Post Demonetisation of High Indian Currency Note – Insight on the grey areas

Banks in India have the image of one of the most regulated institutions, with stringent controls in place. The common man places a lot of trust in the banking system and that is the very reason why the masses feel extremely secured in storing their valuables in the bank lockers and safe. However, the current series of fraudulent events that took place in some of the renowned banks during the period of 50 days, post announcement of demonetisation on the eve of 8th November 2016, shook the entire nation and it further raises doubts about the functioning of financial institutions and their control framework.

Although, it’s a known fact that none of the security systems could be foolproof, but at the same time, what matters is that how quickly an organisation is able to detect the occurrence of any unsolicited event in its system and fix the loopholes “at the origin itself”, before the situation turns into an uncontrollable monster. Now, this is the grey area which I want to highlight in this blog.

Post demonetisation step was taken by the Government of India, a lot many cases of alleged involvement of bank staff in illegal conversion of old notes of Rs. 500 and Rs. 1000 have been unearthed by the Income Tax Department and the Enforcement Directorate, and the hunt is still going on. Surprisingly, most of these cases which involved a huge sum of money have been detected by the outside agencies namely Income Tax Department/Enforcement Directorate and not by the Bank themselves. This indeed is an alarming situation for any organisation and should be an eye-opener, especially for their Management. It indicates that there are certain areas which demand utmost seriousness and urgency. It’s a high time for the management to investigate into the core reasons which led to such lapses in their respective organisation.

There are a lot of questions that need to be answered. What went wrong? What lured the “educated staff” of banks towards getting involved in money laundering cases on such a large-scale? Why banks could not identify the happening of such frauds at the inception stage itself? Above all, the most important question to be asked is that, was it actually possible to curtail such fraudulent events or not? Although, enquiries in all such cases are being conducted by both the bank management, as well as, the external agencies, but any such enquiry would not lead to a conclusive end till a root-cause analysis of such events is done and the learnings are imbibed in the working style of the organisation, in order to, reduce the chances of occurrence of any such events in the future.

Herewith, let me make it very clear that these learnings are not restricted to the financial institutions alone, rather every business house and professional need to take learning’s from such events and thereby take steps to tighten up the controls in their respective organisation in order to minimize the chances of occurrence of such events in future.

Other than the commonly identified reasons like flaws in controls, the absence of proper checking mechanism, malicious intentions of the person’s involved, etcetera there are always some basic reasons or lapses which do not get accounted in the routine investigations. It is interesting to note here that the main reasons/lapses behind happening of any kind of unsolicited events like frauds, accidents, attacks, etcetera are usually very basic in nature, which obviously we tend to ignore in the long run and that eventually results in a bigger loss. Similarly, in the current frauds, there are two major lapses which the financial institutions somewhere ignored or maybe took them too casually, which subsequently resulted in heavy monetary losses, as well as, loss of their brand image. The two major lapses are –

Installation of CCTV Cameras – “Fear of being watched” is the very first step towards curbing the increasing crimes. The graph of crimes falls drastically if people with malicious intentions have a fear that they are being watched. So, any risk prone organisations like financial institutions should be under tight surveillance. Hence, the mechanism like installation of Close-Circuit Television Cameras (CCTV Cameras) in every financial institution (irrespective of the size, location or business it handles) should be the top most priority of its Management, as well as, the Reserve Bank of India (RBI). Gadgets like CCTV serves as a third eye of the management, by which they can keep a watch on the activities going at the remote places, especially in a war like situations as demonetisation when the flow of cash is too much.

On the contrary, as per the information available on The Reserve Bank of India (RBI) website and The Banking Codes and Standards Board of India (BCSBI) website, it seems as if neither the RBI nor the financial institutions find the installation of CCTV Cameras much effective in comparison to the ‘COST’ involved. The below-mentioned details speak for itself.

As per the RBI Circular RPCD.CO.RRB.BC.No.98/03.05.28/2008-09, dated April 21, 2009, named “Security Arrangement in bank branches – Regional Rural Banks” under the sub-heading Currency Chest Branches it is mentioned that “Modern electronic security gadgets viz. CCTV, alarm system, sensors, electronic locks, hot lines, auto-dialers etc. may be installed at all major bank branches holding large amount of cash”. (Reference: RBI website https://www.rbi.org.in/scripts/BS_CircularIndexDisplay.aspx?Id=4939). Similarly, another RBI circular RBI/2013-14/602 DCM (CC) No.G-20/03.39.01/2013-14, dated May 23, 2014, named CCTV Coverage of all cash handling operations in Currency Chests mentions that CCTVs surveillance should also cover all cash operations in the vaults/strong rooms and other cash handling areas to identify any mischief/irregularity (Reference: RBI website https://www.rbi.org.in/scripts/BS_CircularIndexDisplay.aspx?Id=4939).

The above two circulars reflects that RBI has advised/instructed the banks to install modern electronic security gadgets only at the major bank branches holding large amount of cash or CCTV coverage of all cash handling operations in Currency Chests i.e. those selected branches of scheduled banks which are authorised by the RBI to facilitate distribution of notes and coins. Hence, the guidelines of RBI itself don’t make it mandatory to install CCTV in all the branches of banks.

Further, as per the details available on the website of BCSBI – The Chairman, BCSBI and members of the Governing Council held a conference of Principal Code Compliance Officers and faculty of member banks in Mumbai on February 12, 2011. Wherein, one of the issues raised by member banks, as mentioned against Serial No. 23, is that “As per para 9.1 of Code, banks need to install CCTV for close surveillance as part of security arrangements. This may not be required at Rural and smaller towns”. Against which the BCSBI clarification is that “It is for the banks to assess the security environment of their offices and determine their need to install CCTV for surveillance”. (Reference: BCSBI website http://www.bcsbi.org.in/MB_PrincipalCodes_12Feb2011.html)

So, the stand of banks, in installing CCTV for surveillance, is reflected in the above-mentioned representation, wherein they have very clearly demarcated the need for installation of CCTV cameras based on “location of bank branches”. Thus, the bank management is also of the view that the cost involved in the installation of CCTV cameras in all the branches, far exceeds the benefits it will fetch. However, let me make it very clear that this doesn’t mean that these so-called rural or small town branches are less prone to cash related risks.

Hence, from the above-mentioned discussion, it is very much clear that neither the RBI nor the banks, consider it necessary to install CCTV cameras in all the bank branches, simply because of precedence to Cost over Security. So, in this way, the governing body i.e. RBI, as well as, the bank management unintentionally gave a free hand to the culprits by ignoring the very first step of curbing crimes i.e. Fear of Being Watched.

Implementation of Whistle Blower Policy – If any organisation is not able to detect the occurrence of any fraudulent event in their system “on its own” then it’s a matter of serious concern for that organisation. It calls for some immediate actions to be taken by the organisation like enhancing the security features, strengthening the monitoring and control procedures and, at the same time, evaluating the Whistle Blower Policy of the organisation. Non-detection of fraudulent events somehow indicates that either there is no Whistle Blower Policy in the organisation or else it is not being implemented in the right spirit.

To understand the role of a properly implemented Whistle Blower Policy, in simple terms, let us take the example of the current frauds that happened in any of the bank branches. Now, do you think that all the person’s working in that specific bank branch, including the off-role staff, was involved in that fraud? Was the entire branch corrupt? Is it possible that no one else other than the fraudster knew that there was something fishy going on in the branch? Was there no honest person in the branch? If you think that there is even a slight possibility of the presence of an honest person in that branch, who had some clue about anything illegal going on in the branch then that person could have been the Whistle Blower for the bank.

In the present case, the Whistle Blower would have helped the bank in identifying the fraud at its nascent stage and in turn would have saved the bank from incurring huge losses. However, it works only when an organisation realizes the importance of having a Whistle Blower Policy that is clearly documented, communicated and implemented in the right spirit. Only then any organisation could think of detecting and fixing the loopholes “at the origin itself” and thereby stop any unsolicited situation from turning into an uncontrollable monster.

Since most of the current fraud cases were detected by an outside agency and not the banks themselves, so now the ball is in the bank’s court to analyse and decide whether the Whistle Blower Policy (if at all) is properly implemented in their organisation or not. Do note that there is a vast difference in having a documented process, just for the sake of complying with the rules and regulations, vis-à-vis having a process implemented in the right spirit.

As per my view, if the culprits had the “Fear of Being Watched” and there was a properly implemented Whistle Blower Policy then the situation would have been much different from the present one. At least the banks would have been in a far better position to detect such frauds at the inception stage. And, indeed the early identification of some fraud cases would have curtailed such fraudulent events from growing into such large numbers.

I would like to conclude this blog with the hope that each one of us takes learning from these incidences and strengthen the controls at our workplace so that such events don’t occur in future. At the same time, I also hope that we do have proper communication channels, where a Whistle Blower’s voice is heard and acted upon by the authorized persons with utmost secrecy. Let us all strive together to make our organisations a secure place with stringent controls all around.

God Bless you all!

Be in touch.

Peyush Jain

Posted in Banks, Black Money, Common Man, Corruption, Democracy, Financial Institutions, Financial Risk, Frauds, Government, Hindustan, India, Investigation Agencies, Management Lessons, Politics, RBI, Slogging, System, Terrorism, Terrorist, Victim

Demonetisation of High Indian Currency Note – Was it really a masterstroke? – Part 3

Ha! Here I am with the third part of the blog “Demonetisation of High Indian Currency Note – Was it really a masterstroke”? I am sure till now every thinking mind must have figured out the answer to this question. But still, if we ask this question to the “blind or paid followers” they will shoot us with a spontaneous reply, which obviously will be a straight YES (to be read in Bold and CAPITAL). Apparently, after that YES we are not supposed to ask WHY or HOW because to answer it, one need to have some kind of logics by their side. However, it’s a known fact that there is no place for logics in blind worshipping. So if you are among those, who use their brain to analyse things and don’t get coloured with marketing strategies, then instead of banging your head with the blind worshippers, you should try to analyse the facts in light of what was actually achieved in those 50 days and know for yourself the ‘ground’ reality.

In the first part of this blog I have mentioned (with logics) that this step of Demonetisation wouldn’t have much impact on the three major reasons that were provided by Mr. Pradhan Sevak, on the eve of 8th November 2016, behind opting the demonetisation of the high currency notes i.e. 1) Corruption, 2) Black Money, and 3) Terrorism. However, it took long enough to the Government of India to realise this and finally after witnessing the hardship faced by the honest citizens of India, the ministers of the ruling party to have stopped talking about those three reasons and now they are just stressing on paperless economy (which coincidently was one of the solutions in the first part of this blog).

Although, the ego and political ambition of the politicians won’t allow them to accept it in open that this step of Demonetisation was not effective in curbing corruption, black money, and terrorism, in comparison to the cost, hardship and economic impact associated with it, but still it is the hard-core reality which can’t be changed. The politicians can continue self-praising themselves and keep patting their back, but everyone (except the blind and paid followers), knows that the Government of India (GOI) and Reserve Bank of India (RBI) have substantially goofed up in taking this drastic step. For sure the Pradhan Sevak of India and the Governor of RBI knows this fact and may be in the later stage of their life they might gather the courage to openly agree to this blunder on their part. But as of now, the Pradhan Sevak has to keep his ego intact and the Governor of RBI, in order to save his job, has to stand by the side of his Master, so from their side, everything seems to be a goody-goody.

However, if we analyse the events of last 50 days, we will come to know that the GOI and RBI themselves are working on a “Trial and Error” mode. There is a list of absurd steps taken-withdrawn, taken-withdrawn, by the GOI and RBI post 8th November 2016. To name a few like fixing a limit of Rs. 2.5 Lakh cash withdrawal for marriage expenses or keeping of more than 10 old notes of Rs. 500 and Rs. 1000 post 31st December 2016 to be a criminal offence. If asked about these measures, they reply that they have taken these steps based on the feedbacks received from the people. God knows who gives them such feedbacks and ideas to grill innocent people who are already facing a lot of hardships.

How hilarious it is that when the politicians are spending crores of money on marriages, they expect a common man to conduct a marriage in just Rs. 2.5 Lakhs. Mr. Pradhan Sevak when the inflation is already hitting the common citizens to a great extent, do you still think that it is possible to arrange a marriage in one-fourth of the cost of a suit which you once wore? Further, you intended to throw the people behind the bars if they are holding more than 10 old notes of high currency, even if it is out of their hard-earned white money which they were unable to exchange before 31st December 2016? I fail to understand that by this ordinance are they trying to give an indication and a safe passage to the black money holders to destroy the black money in their possession, if “by any chance” they are still not able to convert it into white money?

The government is patting their back by taking surveys on Social Networking websites or Twitter with questions that are bound to be replied in praising the work of the government. While, as per the data available on internetlivestats.com only 34.8% of Indian population is having access to the Internet (Reference: www.internetlivestats.com). When the majority of the population is not on the internet how can we get the correct feedback of what is happening in the real world by conducting surveys in the virtual world? The fact is that whoever wants to know the ground reality will have to come out from the virtual world and step into the real world to feel the nerves of the common man who has been impacted the most because of this Demonetisation step.

The so-called 50 days after which India is supposedly going to change are over now. But still, there are long queues in front of Banks and ATM’s, especially in rural areas. Also, there is a major shortfall of currency in the country. But still, both the Government and RBI claims that the queues have reduced and there is enough availability and supply of currency in the country. Don’t know which world they come from? Seems they have booked a villa in the virtual world to stay in, because the real world is still suffering, which they can’t observe from their place of living. Anyway, who cares for the rural population, which is worthy for the politicians only at the time of elections, right?

The small and medium enterprises have been impacted to a great extent in a negative way and it will take months or years for them to be back on track. The farmers, daily wage labourers, hawkers everyone has been badly impacted. Above all, what scares me more is that the hopes of common citizens are going to be shattered in months to come when they are going to realize that in reality, they are not going to get anything in turn for the hardships they faced all these days.

The two major achievements of Demonetisation are shattering of the hopes of common citizens of Motherland India and the downfall of the image of Reserve Bank of India. Now, the only possible remedy is to brainwash the minds of people and to do this Mr. Pradhan Sevak has to come out either with some other Jumla and trap the innocent citizens with his buttery speeches or else take some drastic steps “with thorough preparedness” this time so that the objectives are actually achieved. Only then the government can hope to recover a bit from the setback of demonetisation.

Herewith, let me make it very clear that I am not trying to say that we are perfect and whatever we do is flawless. Each one of us does make mistakes and that is how we eventually learn and achieve the ultimate objective. However, the greatness of a person is reflected when s/he has the guts to accept the mistake, rather than trying hard to cover it up and convincing others that they were right on their part. For once can they think over and above their personal benefits? Above all, it’s a high time for each one of us to realize that for how long we are going to get fooled with the Jumla’s, emotional or humorous speeches?

I wish that the Almighty give good sense to each one of us.

God bless you all!

 

Peyush Jain

Posted in Banks, Black Money, Common Man, Corruption, Democracy, Financial Institutions, Financial Risk, Frauds, Government, Hindustan, India, Investigation Agencies, Management Lessons, Politics, RBI, Slogging, System, Terrorism, Terrorist, Victim

Demonetisation of High Indian Currency Note – Was it really a masterstroke? – Part 2

It seems as if post-midnight of 8th November 2016; all of a sudden, Indian streets have become the most favourite place to hang out. Long queues could be witnessed at places where the old high denomination currency notes of Rs. 500 and Rs. 1000 are either being accepted, changed or deposited. So much of chaos could be seen at most of the bank branches and ATM machines. The poor and middle-class people, patients, farmers, senior citizens, foreign tourists, all are standing for days, in long queues, for their hard-earned money. Further to this, every other day, a new announcement or a roll back of any previous announcement comes from either the government or the regulatory agency, in the name of easing up the problems faced by the common ‘honest’ citizens of India.

Although, the Government of India (GOI) along with the Reserve Bank of India (RBI) are trying their level best to bring the situation under control, however, the reality is that in rural and interior areas the condition hasn’t changed much. The problem, especially in the rural and interior areas, has aggravated to such a large extent that none of the measures seems to be sufficient enough to bring a significant relief on the hardships that the common men are facing. Due to non-availability of cash in the market, the business is also getting impacted to a large extent. The biggest worry is that it is substantially affecting the agriculture sector, as well. Since we know that India’s economy is agriculture dependent, so if corrective measures are not taken immediately, then it is ultimately going to hit our economy, as a whole. This demonetisation step which was meant to hit the backbone of the corrupt people, black money holders, and terrorists, has actually brought a lot of hardship in the life of honest people. If things continue to be like this and don’t change soon, then the possibility of this resulting in first of its kind “economic riots” happening in the country could not be discarded altogether.

There is no argument on the point that some problems are likely to occur when such radical steps are taken in any economy. But still, a question arise that does hardship to such a large extent is a part and parcel of this demonetisation scheme or was it possible to smoothly execute it, causing least possible trouble to the honest citizens of the nation? Was it so difficult for the learned thinking caps to foresee even the basic problems that will occur on account of banning 86% of the currency from the market? Somehow it reflects that lot many of important things got skipped at the planning stage. Similarly, it forces us to think that whether this entire chaotic situation happened because the regulatory agency could not foresee the consequences of undertaking such a big task of demonetisation in world’s second largest populated country. Or is it that the regulatory agency chooses to surrender in front of the government and hence this step of demonetisation was taken in a hurry with half-hearted preparedness? Now, every responsible authority should evaluate that whether this demonetisation scheme is being implemented in the correct manner or could it have been implemented in a more appropriate manner?

Is it not a big lapse on our part if before executing any scheme we are unable to think of the bare minimum problems that will be faced by the citizens and come up with a solution in advance? If we do a root cause analysis of all the current chaos in the market, we will know that the reason of all these hardships is non-availability of sufficient currency. Why was the adequate availability of new currency notes not been ensured before taking up this drastic step? Although, GOI and RBI are assuring the citizens that there is enough availability of currency in the country, however, the hard-core reality is that within a couple of hours bank branches and post offices run out of cash and those standing for hours, in long queues, have to return empty-handed.

Post implementation of demonetisation also it seems they are not able to come up with precise measures to ease the pain. Why else they will have to roll back the announcements, every now and then? Quite surprisingly, District Central Co-operative Banks (DCCB) and Primary Agriculture Credit Societies (PACS), which constitutes a strong pillar of our financial system especially in the rural areas, are restricted from accepting deposits in demonetised old currency notes. I fail to understand that when as a corrective measure cash withdrawal facility is made available at petrol pumps, what is the logic behind keeping Co-operative banks aloof in this situation which is on the verge of going out of control with each passing day? Is it on account of trust issues with the functioning of DCCB and PACS because of which this action has been taken? This is the question that needs to be answered by RBI and if the answer to that is in affirmative then RBI should take timely corrective actions.

It is to be noted here that in spite of all the hardships, the common men stands with the government in the fight against black money and has wholeheartedly extended their support in favour of this decision. The major reason of masses backing up demonetisation is because they are suffering since long from the disease of corruption, black money and terrorism and they seriously want to eradicate it from the nation, once for all. They are ready to face short-term pain, in anticipation of a better future. They have placed their hope in the present leadership and are positive that after 30th December 2016, the nation will see a new beginning of a corruption free India. Although, how much of that is actually achievable is a question that only the future will be able to answer correctly. I do hope that the wishes of common citizens come true this time and they are not left disappointed as usual.

I wish that the Almighty give good sense to each one of us.

God bless you all!

 

Peyush Jain

Posted in Banks, Black Money, Common Man, Corruption, Democracy, Financial Institutions, Financial Risk, Frauds, Government, Hindustan, India, Investigation Agencies, Management Lessons, Politics, RBI, Slogging, System, Terrorism, Terrorist, Victim

Demonetisation of High Indian Currency Note – Was it really a masterstroke?

As per the notification issued by the present Indian Government, with effect from midnight of 8th November 2016, existing High Indian Currency Notes having the denomination of Rs. 500 and Rs. 1000 (which accounts for almost 86% of the currency) ceases to hold its status as legal tender. In simple terms, existing Indian Currency Notes of Rs. 500 and Rs. 1000 are banned from the said date, and hence, these notes are not valid for any kind of monetary transactions like receipts and payments i.e. the transaction value of these currency notes is henceforth Nil. However, keeping in mind the convenience of the citizens, the central government has notified certain services/products/organisations like hospitals, petrol pumps/gas stations, etcetera, wherein for specified transactions, Rs. 500 and Rs. 1000 currency notes shall be accepted, until the date specified by the government.

It’s indeed a historic step taken by the present government and majority of the citizens, irrespective of the temporary inconvenience encountered at their end, are happy and stand with the government in this move. The common men, the experts, the economists, as well as, a lot many of the learned and respected persons across the globe have opined their views in favour of this move and expressed it as a drastic step taken by the present Indian Government in the fight against black money.

However, in this “viral addictive” world, it’s highly important to analyse, with an open mindset, that all the information circulated around us is absolutely correct or not. Likewise, we need to analyse whether this step of demonetisation is really going to have a larger and futuristic impact, “as claimed from every direction”? Was it really a masterstroke or did the government somewhere missed the opportunity to hit a home run? So guys, keep your thinking caps on, while we try to find out the answers to all such questions and rest be assured that this blog is surely going to serve you with a healthy food of thought and will indeed be an eye opener.

First of all, let us find out that why the Indian Government has taken this step of demonetisation of High Indian Currency Notes? – On the eve of 8th November 2016, the Pradhan Sevak, Mr. Narendra Damodar Modi, in his historic and crystal clear speech, conveyed all the information with regard to demonetisation of Rs. 500 and Rs. 1000 currency notes and explained every minute detail. At the outset, he deserves a big applause for such a good speech. Further, addressing the nation, Mr. Pradhan Sevak, informed the three major reasons behind opting for demonetisation of the high currency notes i.e. 1) Corruption, 2) Black Money, and 3) Terrorism.

Hence, in the subsequent paragraphs of this blog, we will analyze demonetisation of high currency notes in light of the above mentioned three reasons and try to understand that how effective the demonetisation step will be in addressing those three issues:-

1) Corruption – In order to understand the impact of demonetisation of high currency notes on corruption, let’s first divide corruption into pre and post demonetisation period i.e. corruption that has already taken place before demonetisation and corruption that is going to take place after demonetisation of High Indian Currency Notes.

a) Corruption before demonetisation – All the cases of corruption that has occurred on or before the midnight of 8th November 2016 falls in this list. I am sure every sane mind will agree that we can’t undo anything that has already been done in the past (unless and until there is a secret time machine existing on planet earth). So, the corruption that has already been done in the past can’t be undone by merely demonetisation of currency notes, because of the simple reason that the money has already travelled from the hands of the sufferer into the hands of the corrupt individual.

Now, a valid question might pop up in your mind that although the past corruption cases could not be undone, as well as, the sufferers could not gain any benefit from this step, but, wouldn’t just by demonetisation of high currency notes the money that is lying in the hands of the corrupt people will automatically turn into scrap, and, in this way, help in fighting corruption? Herewith, I would urge you to park this question in your mind for some time, because the answer to this question is available in the point number 2 on Black Money.

b) Corruption after demonetisation – All the cases of corruption that are going to take place post-midnight of 8th November 2016 falls under this list. Now, please don’t accuse me of being so optimistic about corruption. On the contrary, don’t we all know that “occurrence of corruption” is a hard-core reality and it is bound to occur even after demonetisation of high currency notes? So, the big question is that what will be the impact of demonetisation on the future corruption cases?

Since demonetisation is a one-time cleansing activity which will make the existing high currency notes ineffective, so it won’t have a larger role to play in curbing future corruption cases, as well. At the most it can have a short-term impact on the mindset of corrupt people, but, as and when the new high currency notes are easily available in the market, the corruption will once again catch its pace.

On the contrary, the absence of High Currency Notes in an economy could have a larger impact on the “occurrence of corruption” in any country. The logic behind it is that transactions on account of illegitimate deals and corrupt demands mostly get materialize by transfer of funds in high currency notes. So, there is a fair chance that if there are no high denomination currencies notes available in a country then the graph of corruption might decline substantially. Thus, the absence of high currency notes could play a major role, in at least curbing the corruption, if not eradicating it completely. This is the very reason which has compelled most of the developed nations to ban high currency notes in their respective nations.

Now, the present government somewhere missed this golden opportunity to curb the future corruption cases because even though they focused on demonetising the existing high currency notes, but, at the same time, they went a step further and issued new higher denomination Indian Currency Note of Rs. 2000, along with the new currency note of Rs. 500 and further propose to issue the new currency note of Rs. 1000, as well, in near future. Now, this step of once again issuing the high denomination notes is contradicting the very purpose of curbing the corruption cases which materializes by means of high currency notes. This move of the government has once again left the doors open for future corruption to enter in our economy and this time on a much larger scale.

Solution to curb Corruption – Although, the high denomination currency notes help in ease of monetary transactions, however, at the same time, it comes with a very high risk of flourishing corruption in the economy. Thus, if at all, the government intends to curb the future corruption in the country then all the high denomination currency notes should be banned, until the time a technology is devised which either makes it impossible to replica the notes or else makes it possible to track each and every single currency notes issued in the country. Further, we should strive to move towards a paperless currency in near future.

2) Black Money – The second reason, as provided by the government, for opting the demonetisation step is black money. By this step, the government is projecting that the black money holder will either keep holding the black money or destroy it, which will eventually turn it into scrap, or else, the black money will come out in the economy. Indeed, there is no argument on the point that under the current circumstances, only these two outcomes are possible for the black money that is held in high currency notes and there is no third possibility available.

Now, if we analyse both the possible outcomes, we will realize that, as far as, the first outcome is concerned there is not much to worry about as the transaction value of Rs. 500 and Rs. 1000 note is already Nil, and, as such, holding or destroying the currency notes won’t affect the economy much. However, the real problem arises with the second outcome i.e. when black money starts coming out in the economy. The biggest concern with this outcome is the channel through which this black money will enter the economy. Needless to say that there is no problem when the black money is routed through legitimate means i.e. after paying taxes, penalties and complying with other legal formalities. But, it’s a known fact that those opting for the legitimate route (if at all) will be meagre in number, while the majority will resort to the illegitimate means of converting black money into white and, thereby, flushing the black money into the economy.

Hence, no one can discard the fact that the major chunk of black money is going to be routed through illegitimate routes only. Now, assuming that majority of the ‘liquid’ black money is held in high currency note, the real challenge that is posed in front of any economy is to keep a check on the means from where the black money could be pumped into our economy, especially in circumstances like demonetisation of high currency notes. At the same time, it should also be kept in mind that not much time should be made available for the black money holders to convert their black money into white. So, as and when, a country opts for drastic steps like demonetisation to curb black money, the importance of keeping a check and control ‘beforehand’ on all such means from where the black money could be converted into white money should be given extra weight-age, because any loop-hole on this front could ultimately hamper the very purpose of demonetisation. Herewith, I would like to clarify that beforehand check and control means stopping the activities to occur at the first stage, rather than taking corrective actions.

Now, on this front, the present government has missed the bus. The holders of black money got enough time, as well as, mean to dispose of the black money in their possession. Just to throw some light on this, I would like to draw your attention towards the incidences that happened after the notification for demonetisation was issued from government’s end. As a matter of fact, the government notified the nation at around 8 P.M. about banning the high currency notes with effect from midnight of 8th November 2016. Thus, on an average, the time left was less than 4 hours for black money holders to materialize the deals. However, it is interesting to note that the jewellery shops did ‘record’ business post this notification and some of the jewellery shops are claimed to have remained open till 4 A.M. of 9th November 2016. This denotes that although the transaction value of Rs. 500 and Rs. 1000 currency notes post-midnight of 8th November 2016 is Nil, but still, monetary transactions are taking place in high currency notes, right in front of the eyes of the government. This simply means that even though all these transactions are illegal, yet the government made no attempt to stop them “at their source”.

Will the Income tax raids on selective business groups/shops, post happening of the transactions, in any way, going to help in catching all the black money holders?  If banks could be kept closed for one day for preparedness with respect to demonetisation, wasn’t it in nation’s interest to be extra vigilant and close all those businesses wherein the black money held in high currency notes was supposed to be expended like jewellery shops, etcetera? Why were they allowed to transact post-midnight of 8th November 2016? This is the biggest loophole, of which the black money holders took advantage and flushed the black money into the economy. And further to this, since the government has notified the time frame available to change/deposit the high currency notes of almost 50 days (as of now), so there is still enough time available for the black money to get pumped in our economy through ‘illegitimate’ channels. It’s not hidden from anyone that till date monetary transactions (other than those notified by the government) are taking place in our economy, with Rs. 500 and Rs. 1000 currency notes because of the simple reason that there is still time available for getting them changed/deposited in the bank accounts. The government should have warned the citizens that all the monetary transactions (other than those specifically notified by the government) that take place by exchange of Rs. 500 or Rs. 1000 currency notes are illegal and should be dealt with seriously.

Herewith, I would also like to draw your attention to one more point that, as far as, means to route black money into banking channels is concerned, other than the mostly used measures like purchase of precious commodities, real estate, jewellery, hawala transactions, etcetera, this time there is a high probability of black money channelizing through all those bank accounts which were opened under “Jan Dhan Yojana”. Although, the “Jan Dhan Yojana” is indeed a very good initiative by the present government for financial inclusion to ensure access to financial services for all those people who were earlier deprived of these channels, but still there is a high chance that now all these bank accounts might be used as a means of channelizing black money. The black money holders will surely be eyeing on all these accounts, for converting their black money into white money, especially in the light of the government’s clarification that amount deposited up to Rs. 2.5 Lacs in single accounts would not be questioned much. Similarly, a lot of black money could get pumped in the name of agriculture income, donations received by charitable institutions, NGO’s, etcetera. So, this is also a big challenge to monitor black money that gets routed into the economy through these channels. Above all, the current bandwidth of any investigation agency is not enough to scrutinize the details of all the bank accounts and post bank accounts.

Solution to curb Black Money – In order to curb black money, by way of demonetisation, two of the most important things to be focused on, are the time and means available with the black money holders for converting the black money into white money. The interesting thing to note here is that if there will be no time available to convert the black money into white money, all the means to channelize the black money into white money will automatically get ineffective and there is a high probability that the majority of the liquid black money held in high currency notes will get scrapped, on its own. Having said that, the real challenge that will pose in such situation is that how to tackle the conversion of high currency notes held in the hands of honest citizens, because these high currency notes will be required to be converted into small denomination notes and for that reasonable time needs to be given to the citizens of the nation.

So, as far as, time is concerned the government is left with not much option because they have to give reasonable time to the citizens for changing/depositing the cash-in-hand available with them in high denomination currency notes. Hence, the hard-core reality is that after demonetisation step, the black money can’t be stopped in totality from entering the banking channels. Thus, the only option left with the government now is to engage the entire machinery in monitoring and controlling the means from where the black money could be routed, so that at least the amount of black money that is entering into the economy could be restricted to the bare minimum.

3) TerrorismHawala transactions and counterfeit currency notes are two of the major sources of fund for terrorism in the country. Supposing that majority of the funding for terrorism takes place in high denomination currency notes, demonetisation of these notes will automatically break the nexus and, in turn, bring a ‘temporary’ reduction in the terrorism activities on our soil. Demonetisation is indeed a powerful stroke against terrorism because it will have the impact of ceasing the funding through counterfeit currency notes in a single blow, and, at the same time, it will also help in restricting the funds transferred through Hawala transactions for funding of terrorism. However, it is to be noted here that this is only a temporary solution to restrict terrorism activities, and, as and when people with malicious intentions are able to replicate and print the counterfeit notes of the new high denomination currency notes issued in our country, the supply of counterfeit notes for funding terrorism will start again.

Solution to curb Terrorism – For curbing terrorism breeding on account of high denomination currency notes, the permanent solution is to ban all the high denomination currency notes in the economy and strive to move towards an economy with paperless currency.

Finally, after analyzing the demonetisation of high currency notes, in line with issues like corruption, black money and terrorism, my view is that although the intentions behind opting for demonetisation step are good, however, somehow the government missed hitting the home run on account of the various reasons mentioned in the respective points above. Now, I leave the ball in your court to decide whether it was a masterstroke or not.

I would like to conclude this blog with the hope that may this demonetisation step bring positive changes in our economy and, once for all, remove the chronic diseases like corruption, black money and terrorism from our soil. At the same time, I do hope that the government takes remedial measures in time so that it is able to restrict the black money from flowing into our banking channels. Let us wait and watch to see what is hidden in the womb of future.

I wish that the Almighty give good sense to each one of us.

Be in touch.

God bless you all!

 

Peyush Jain

Posted in Banks, Financial Institutions, Form 15G/H, RBI, Section 197A of the Income Tax Act, Slogging, Tax

Submission of Form 15G/H under Section 197A of the Income Tax Act, 1961-2015 – Are the provisions of the said section followed in the right spirit?

In this blog, let us try to understand the provisions of section 197A of the Income Tax Act, 1961-2015 (hereinafter referred to as the Act), and thereafter evaluate whether the assessee, as well as, the payer (especially banks) are following the provisions of the said section in the right spirit or not. It’s been a long time since this section was first introduced, but till date, a lot of the assessee’s are not aware that whether they are eligible to submit the prescribed form i.e. Form 15G/H or not. At the same time, a lot of the assessee’s ‘knowingly’ that they are not eligible, still submit the declaration in the Form 15G/H. As far as, payers are concerned let us find out whether, as per the provisions of the Act, Form 15G/H is required to be submitted ‘once in a year’ or else is it required to be submitted ‘every time’ a new Deposit is opened by the same account holder (which is the current practice followed by a lot of banks). I hope this blog will bring more clarity on the section 197A of the Act, as well as, answer all the questions raised above.

Section 197A – Section 197A of the Act, deals with the provision concerning the non-deduction of tax at source in certain cases, if a written declaration in duplicate, in the prescribed format, is furnished by the individual/person, as the case may be, to the person responsible for paying any income under section 193 (Interest on securities), 194 (Dividend Income), 194A (Interest other than interest on securities), 194EE (Payment under National Saving Scheme, etcetera) and 194K (Income from units), as specified in the relevant sub-sections.

Section 197A (1) – As per section 197A (1), no tax shall be deducted at source, in case of an individual, who is resident in India, on the income received under section 194, 194EE, if such individual furnishes to the payer a declaration in writing in duplicate in the prescribed form to the effect that tax on his/her estimated total income of the previous year (including the income under the above-mentioned sections) in computing his/her total income will be nil. (Source: Website of Income Tax Department, Government of India: www.incometaxindia.gov.in)

Section 197A (1A) – As per section 197A (1A), no tax shall be deducted at source, in case of a person, (not being a company or firm), on the income received under section 193, 194A and 194K, if such person furnishes to the payer a declaration in writing in duplicate in the prescribed form to the effect that tax on his/her estimated total income of the previous year (including the income under the above-mentioned sections) in computing his/her total income will be nil. (Source: Website of Income Tax Department, Government of India: www.incometaxindia.gov.in)

Section 197A (1B) – As per section 197A (1B), the assessee cannot furnish the above mentioned declaration if the aggregate amount of the income under section 193, 194, 194A, 194EE and 194K, during the previous year in which such income is to be included, exceeds the maximum amount which is not chargeable to income tax.

Form 15G/H – The prescribed form that is required to be furnished to the payer in writing in duplicate are commonly known as Form 15G/H, wherein, Form 15H is to be submitted by a senior citizen who is of the age of sixty years or more at any time during the previous year, while 15G form is to be submitted by any other individual/person (other than a senior citizen), who is eligible as per the provisions of section 197A of the Act.

Assessee’s who are eligible to submit a declaration in Form 15G/H – In order to be an eligible assessee for submitting the declaration in Form 15G/H as per the section 197A of the Act, two things need to be satisfied. Firstly, as per section 197A (1) and 197A (1A), the tax on the estimated total income of the previous year (including the income specified under the said sections) in computing the total income should be nil. Secondly, as per section 197A (1B), the aggregate amount of the income under section 193, 194, 194A, 194EE and 194K, during the previous year, should not exceed the maximum amount which is not chargeable to income tax.

Hence, from the above-mentioned explanation, it is it is very much clear that even if the tax on the estimated total income of the previous year is nil, but if the aggregate income under section 193, 194, 194A, 194EE and 194K exceeds the maximum amount chargeable to income tax then the assessee is not eligible to submit the declaration under section 15G/H as per section 197A of the Act. Please note that any person, who is found making a false statement in the declaration, is liable to be prosecuted and punished under section 277 of the Act.

What should be the frequency to submit Form 15G/H – In the Form 15G/H, the assessee makes a declaration, as per section 197A (1) and 197A (1A), to the effect that tax on his/her estimated total income of the previous year (including the income specified under the said sections) in computing his/her total income will be nil, as well as, also declares, as per section 197A (1B), that the aggregate amount of his/her income under section 193, 194, 194A, 194EE and 194K, during the previous year, will not exceed the maximum amount which is not chargeable to income tax. Thus, the plain reading of the content of Form 15G/H in itself clarifies that it’s a yearly declaration that is made by the assessee to the respective payer.

However, the current practice adopted by a lot of banks is that they demand submission of Form 15G/H ‘every time’ a new Deposit is opened by the same account holder, even if the account holder has already submitted the respective Form 15G/H earlier (mostly at the start of the respective financial year). In absence of that, they deduct tax at source on the new deposit account, so created post submission of the Form 15G/H.

Although, the Form 15G/H requires the declarant to submit the complete details of shares, securities, sums given on interest, a withdrawal made from National Saving Scheme, etcetera, as held or withdrawn on or up to the date of the submission of the form. But could this be the reason of demanding the submission of Form 15G/H ‘every time’ a new Deposit is opened by the same account holder? None of the provision of section 197A of the Act specifies that ‘every time’ the assessee invests/withdraws an amount he/she is required to submit the declaration in Form 15G/H to the respective payer. Then on what basis the banks are following this practice of demanding submission of Form 15G/H ‘every time’ a new Deposit is opened by the same account holder, who has already submitted the respective form for that particular previous year, is the question that the learned and respected officers of the banks should answer in order to clarify this issue, once for all.

Also, many banks don’t give the receipt/copy of Form 15G/H submitted by the account holder. This act not only tantamount to infringement of the right of the customer to get a receipt of every transaction made by them, but at the same time, it also depicts that the officer concerned wants to merely shed away their responsibility of being answerable in case necessary actions are not taken by them in the matter concerned. Is this a professional behaviour on the part of the financial institutions, which boasts about stringent policies and procedures?

I would like to end this blog with the hope that every individual/person concerned; Banks, Reserve Bank of India (RBI) takes note of the serious issues highlighted in this blog, as well as, takes necessary actions as required at their end, so that the section 197A of the Act is ultimately followed in the right spirit.

 

Peyush Jain