DEMONETIZATION: How some earned lakhs standing in queues

modiThe government has banned over-the-counter exchange of old 500- and 1000-rupee notes due to suspected gaming of the system by those with black money. According to banking industry sources, the over-the-counter exchange system was being massively misused by hawala operators and others who had illegal funds to convert their old currency into new notes.

“The system was so sophisticated that people who had 10 or 20 lakhs of black money could get it converted within one or two days,” said a bank manager.

MANIPULATION

The modus operandi was simple.

A single person would either hire, or call in friends and family members, to stand in line in banks and post offices with either a driver’s license or Aadhaar card or Voter’s ID or anything else they could find.

“It was more difficult in the initial days, as each person had to stand for the entire 1 or 2 hours in the same line, but once we introduced token system to ease the congestion, the entire model changed,” said the manager.

Without the token model, a team of 4 persons could convert only Rs 16,000 per 1.5 hours (the average time a person took to reach the front of the queue.)

Since they could do this for about 7.5-8.0 hours a day, each person would have been able to stand in a maximum of five queues in different banks — going from one branch to another.

As a result, one person would have been able to convert Rs 4,000 multiplied by 5, or Rs 20,000 per day. Even if he or she charged only a 20% commission, he could earn Rs 4,000 — just by standing in queue all day.

In other words, a team of five could convert Rs 1 lakh of black money into new notes in a single day.

“But the true manipulation began after the first two days,” says the banker. “To deal with the rush, most banks started giving out numbered tokens from the second or third day, and this multiplied the gangs’ abilities.”

“In fact,” he said, “it became so bad that most people with 10 or 20 lakhs of black money were getting it converted in a day or two using these gangs.”

Once the token system was introduced, said the manager, instead of 4 or 5 people standing in different banks, a single person would go and collect tokens from 4 or 5 nearby banks.

“After this, they would keep checking each branch to see when their name would be called, and coolly walk away with cash when they were.”

“Everytime I went outside for a tea or snacks, I could see our clients, or people who were just now standing in our queue, coming out of the neighbouring bank,” said the manager.

While it took a team of 5 people to convert Rs 1 lakh of black money into new notes on the first couple of days, with tokens, a single person was able to do this, he pointed out.

As such, there some of these people — who charged commissions ranging from 10% to 40% — were earning Rs 10,000 to 40,000 per day just by standing in queue.

The manager said that the banking staff were not able to stop these people as it was beyond their powers to do so.

“I know what they are doing. But I cannot stop them from going out of the branch after collecting the token, or from entering the neighbouring bank after doing so,” he said.

The government allowed over-the-counter exchange of cash primarily for the benefit of those without bank accounts, but, said the manager, the facility was massively misused by ‘mules’.

With one person able to exchange as much as Rs 1 lakh per day, there were hawala operators — who had several ‘boys’ on their payroll — had networks of 50 or 100 people who were standing in queues.

These hawala operators, some of who were dealing in crores of rupees per day, were earning tens of lakhs each day from the demonetization and exchange program.

Not only did this cause severe inconvenience to genuine people who were trying to get their money exchanged, but it also threatened to make the entire demonetization exercise meaningless. This is what forced the government to first bring down the over-the-counter limit to Rs 2,000 after the first eight days, and then to cancel the program after running it for another five more days.

ALL IS NOT LOST

On a positive note, the heavy rush and the Rs 4,000 limit helped to prevent large-scale damage to the demonetization program.

Going by Reserve Bank of India data, the total money that was swapped over the counter via banks (excluding post offices) was around Rs 3,300 cr per day in the first 10 days, and around 1,800 cr per day in the next five days. In other words, the total was around Rs 42,000 cr via banks. (It is not known if this number includes post office collections. Even if post offices disbursed another Rs 8,000 cr, the total would be around Rs 50,000 cr.)

Even if half of this amount was ‘black’, that would still amount to only 25,000. It is estimated that the total undeclared money in India held in the form of cash was around Rs 5 lakh cr.

It is expected that around half of the total black money held in currency will be deposited into bank accounts using the benami route through friends, relatives and employees of the black money holder. Another small chunk would be deposited by the holder of the funds as declared as extra income for the ongoing year.

To really make the demonetization exercise useful and worth the pain, it should extinguish at least Rs 1 lakh cr worth of black money by Dec 30.

Given that the total amount held in 500- and 1000-rupee notes is Rs 14.2 lakh cr, this means that the total amount of old currency collected by banks and post offices by Dec 30 should be at least Rs 1 lakh cr less than this — or 13.2 lakh cr or lower. In the first ten days after demonetization (till Nov 18), the total old currency collected via banks was 5.44 lakh cr, according to the Reserve Bank.

 



Bharti Airtel to launch pan-India Payments Bank tomorrow Bharti Airtel, India's largest telecom company, will take a crucial step towards entering the financial services business as it launches its Payments Bank operation across India tomorrow.Payments Bank refers to a limited operations bank that can be primarily used for making transactions, and not for depositing money.The operator has already start...
Katju says SP will defeat BJP in UP Elections; Demonetization, Akhilesh to aid Former Supreme Court judge and a keen observer of Indian politics, Markandey Katju has predicted a win for the Samajwadi Party led by Akhilesh Yadav in the upcoming Uttar Pradesh Assembly elections.BJP, which is seen as a strong contender by many, would be negatively impacted due to the impact of demonetization and the clean image projected by SP chief m...
Supreme Court to consider banning charge-sheeted candidates from polls The Supreme Court has today agreed to hear a petition that seeks to ban anyone who has been charge-sheeted in a criminal case from contesting elections in India.BJP leader Ashwini Upadhyay, who is among one of the most prolific filers of public interest litigation in India, is among those who had filed such petitions seeking disqualification of such ...
PayTM adds support for UPI payments Customers of PayTM, India's largest wallet service can now make payments using the Unified Payments Interface, the government of India's open payments platform.The company has signed up with ICICI Bank be able to receive payments from its customers who are on the UPI platform using its ID 'paytm@icici'.However, customers cannot simply transfer the mo...
COLUMN: Why it’s hypocritical for Rahul Gandhi to accuse Narendra Modi of taking money from co... One of the interesting aspects of the current accusations and counter accusations around the alleged funding of BJP's 2014 Lok Sabha campaign by corporate houses is the sheer hypocrisy of it.Let's see why.According to third-party figures, an estimated Rs 23,000 cr was spent by candidates and political parties on the 2014 general election.Assu...
Mining baron Sekhar Reddy arrested after Income Tax raids Sand miner Shekar Reddy has been arrested, two weeks after the seizure of crores of rupees and gold in an income tax raid. The arrest has come hours after Income Tax officials conducted a raid on Tamil Nadu's top bureaucrat chief secretary P Rama Mohana Rao at his home.It was speculated that Rao's home was raided on the basis of information obtained from...
Rahul Gandhi’s gives ‘earthquake evidence’ on Modi After keeping the nation waiting for 10 days, Rahul Gandhi today dropped his 'bomb' on Narendra Modi that he had promised would 'cause an earthquake'.Gandhi said a company based in Uttar Pradesh has written "that Modi has taken money from them multiple times over six months."Quoting income tax investigation reports, Gandhi said: "They have writt...
Demonetization: RBI removes ‘explanation’ requirement for KYC accounts The Reserve Bank of India has responded to widespread criticism of its directive to collect 'explanations' from those depositing more than Rs 5000 by clarifying that this directive will not apply to bank accounts with proper documentation."On a review of the above, we advise that the provisions of the above circular at sub para (i) and (ii) will not appl...
Demonetization: Modi announces bumper prizes; 15 lakh users to get 1,000 rupees Narendra Modi announced several 'prize schemes' to promote cashless transactions.Under the schemes announced today, there will be two sets of prizes for consumers and another for small merchants.Under the first scheme, any customer who uses any electronic form of payment, including wallets and debit cards, will qualify for a 'lucky draw' of Rs 1,000 ...
Demonetizaton: Govt places limits on last minute deposits The Reserve Bank of India said that any person who continues to hold old notes of 500 and 1000 rupees in bulk will get only one more chance to deposit them into bank accounts and will also have to provide an explanation for the delayed deposit."Tenders of SBNs in excess of ₹ 5000 into a bank account will be received for credit only once during the remain...
Demonetization: Swaraj India says political parties could become money laundering centers Swaraj India party today said the Income Tax department's decision to continue to provide immunity to political parties from having to reveal their sources could turn them into money laundering centers.According to Section 13(A) of the Income Tax Act, 1961, if you have registered a political party, you can deposit any amount of money after opening an acc...
UPA-era procurement delays kept us back – BSNL CMD BSNL Chairman and Managing Director Anupam Shrivastava blamed delays in procuring key equipment for the present backward condition of the state-owned telecom operator.The company, which was once profitable and dominated India's telecom sector, has run up huge losses in the last several years, while private telecom companies have reaped tens of thousands ...
BSNL JE 2016 recruitment frozen after complaints to DoT – CMD Shrivastava BSNL Chairman and Managing Director Anupam Shrivastava said the recruitment of Junior Engineers (JEs) into the telecom company has been frozen by the Department of Telecom on the basis of complaints."It is being held up by the Department of Telecom... due to complaints," Shrivastava said in response to questions by candidates who have qualified in the ex...
DEMONETIZATION: Wholesale Price Inflation falls to 3.15% in November The annual rate of inflation, based on monthly WPI, stood at 3.15% for the month of November, 2016 as compared to 3.39% for the previous month and -2.04% during the corresponding month of the previous year.The fall is largely expected due to the impact of the withdrawal of high-denomination currencies during the month.Build up inflation rate in the ...
Domino’s Pizza starts cashless facility for phone orders Domino's Pizza has started cashless payment facility for those who order by phone as well."Post demonetization, we have seen many customers choosing to order online. Consumers coming to our restaurants to dine in or carry out are able to pay With Credit caras or Wassets. However, there are many customers who still order with a phone. It is for these cust...