Demonetization highlights the Centre-RBI communication lapses

23 Dec 2016 | By Ramya Patelkhana
Demonetization: Strained Centre-RBI relations

The Reserve Bank of India and the Centre don't often see eye-to-eye, even in the best of times; which these post-demonetization days certainly aren't.

The pressure of managing the demonetization process has highlighted communication lapses between the central government and the central bank.

One such recent incident was the RBI's notification imposing restrictions of deposit of demonetized banknotes worth over Rs.5,000 after 20 Dec'16.

In context: Demonetization: Strained Centre-RBI relations

23 Dec 2016Demonetization highlights the Centre-RBI communication lapses

NotificationLack of coordination between the Centre and RBI

The lack of coordination between the Centre and the RBI has come in the way of smoother implementation of several measures post demonetization.

Though the Finance Ministry took the decision of restricting deposits of over Rs.5,000 in old notes, the government said the notification was "badly drafted."

It said especially the section mandating the explanation of reasons for delaying deposits was not well drafted.

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RBI's ImageRBI's image tarnished by frequent changes in notifications

People in RBI feel the central bank's image has been tarnished by the frequent changes in notifications - most of which are issues on the government's directions.

Global credit rating agency Standard & Poor's recently said the center's surprise move has undermined the RBI's reputation for competence and independence.

S&P's comments came as the RBI and the Centre were facing criticism for the demonetization.

Another contention between centre and RBI

Another contention between the Centre and RBI was the number of old notes returned to banks. The government also contested the figure released by RBI. However, Economic Affairs Secretary Shaktikanta Das recently asked RBI and the banks to check the figures for possible double counting.

24 Dec 2016RBI proposed note-ban hours before PM's announcement

The RBI revealed that the bank's central board of directors made a recommendation for demonetizing Rs.1000 and Rs.500 notes at a meeting in New Delhi on November 8.

In response to an RTI query it was revealed that the bank made the recommendation just hours before the PM's announcement.

However, both the Centre and the RBI maintain that the decision was discussed for long.

Waiver of charges on card transactions

Another issue of discord between the government and the RBI was the waiver of charges on card transactions until 30 Dec'16. The decision has been implemented despite RBI's view that waiving off charges completely would be a disincentive for banks.
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11 Jan 2017RBI: Note ban on Centre's recommendation

The RBI has informed the Parliament's standing committee on finance that the note ban was implemented based on recommendations from the Centre just a day in advance.

Some stated that the RBI's response was contradictory to the Centre's version of events that said the RBI recommended demonetization.

However government sources maintained that the decision was under discussion with the RBI for 3-6 months.

14 Jan 2017RBI employees ask the Governor to stop Centre's interference

Employee unions of the central bank wrote to the RBI governor Urjit Patel to take action against Centre's "unwarranted interference".

The RBI employees were reacting to a report that says of a joint secretary from the finance ministry being sent to the RBI headquarters to regulate currency procedures.

They said RBI had worked efficiently and independently since 1935 and should continue like that.

16 Jan 2017Ex-SBI chairman accuses RBI of lying on demonetization

Former State Bank of India chairman Pratip Chaudhuri has alleged that the RBI has been "lying on the face" to Indian citizens about the cash situation.

He said the RBI should be more transparent about the demonetization process.

Chaudhuri believes the cash situation won't become normal at least for the next three months.

He said demonetization has had a lasting impact on India's economy.

18 Jan 2017RBI: new notes worth Rs.9.2 lakh crore already introduced

RBI governor Urjit Patel stated that new notes worth Rs.9.2 lakh crore have already been introduced in place of Rs.15.4 lakh crore worth Rs.500 and Rs.1,000 notes that were removed from circulation.

Speaking to the Parliamentary Panel on demonetization, Patel said demonetization discussions began early last year.

Patel will appear before the Public Accounts Committee of Parliament for the same issue on 20 January.

19 Jan 2017Former PM MMS comes to Urjit Patel's aid

Former PM Manmohan Singh came to the aid of RBI governor Urjit Patel amidst the heated debate on demonetization, saying he is not obligated to respond to queries on lifting banking restrictions.

Singh came to Patel's defence when he was questioned by Congress MP Digvijaya Singh.

He said answering the questions would put pressure on the banking system.

21 Jan 2017Demonetization: Bankers threaten to go on a nationwide strike

Certain bank trade unions have intimidated that they would go on a nationwide, day-long strike on 7th February.

Their demands include complete removal of regulations imposed during demonetization and safeguarding RBI's autonomy.

They also want payment of overtime to employees who assisted in the 50-day period.

In other news, the RBI is yet to find out the number of notes junked during demonetization.