Cash crisis: Aaj ki taaza khabar!

 

Recalibrating ATMs to take more than a week, reports Abhijit Lele

Bankers said work on recalibration of ATMs for new currency notes had begun, but it would take more than a week to cover a substantial part of the network.

Cash management companies reported filling up ATMs had been affected because bank staff were under pressure at branches.

It is taking far longer to get money for loading and carrying to ATMs.

Only one-third of the usual number of ATMs had been filled in the last two days.

An executive with a company manufacturing ATMs said technical changes for recalibration involved software as well as hardware work. More than 1,000 professionals are on the job.

Some banks have intensified use of micro-ATMs in remote areas. IDFC Bank has Aadhaar-enabled interoperable micro-ATMs at 1,000 unbanked locations in kirana stores, chemist shops and panchayat offices.

Long queues at bank branches and ATMs were reported across the country on Monday, November 15. This deterred many from visiting branches and ATMs and they chose to use online payments and point-of-sale machines.

An ICICI Bank spokesperson said debit card transactions had shot up by 100 per cent over the last seven days and credit card transactions were up nearly 40 per cent.

On November 12, point-of-sale and e-commerce transactions processed using ICICI Bank debit cards were significantly higher than 1 million. This is a 70% increase over regular volumes.

Deepak Chandnani, CEO, South Asia and Middle East, Worldline, an electronic payment monitoring company, said the volume of card transactions at points of sale had climbed from about 4 million a day to 10 million.

High-value deposits under I-T lens

Department keeps a watch on suspectedly illegal transactions, reports Dilasha Seth.

The income tax department will start checking possible mismatches (Rs 250,000) between the declared income and the amount deposited by individuals above Rs 2.5 lakh between November 10 and December 30.

"We are getting data of deposits over Rs 2.5 lakh from banks. We will start enquiries where the deposited amount does not match with the income (declared). The rate of penalty will be 200 per cent in these cases," Central Board of Direct Taxes Chairman Sushil Chandra told Business Standard.

The I-T department, he said, would look at the declared income of the earlier four to five years and do the matching.

"We will re-open old cases where needed. If you have been reporting an (annual) income of Rs 5 lakh (Rs 500,000) or not filing any return, but deposit Rs 50 lakh (Rs 5 million), we will ask such individuals to explain the source of income," Chandra said.

The department is also keeping a watch on suspectedly illegal transactions, including by jewellers. It has been checking if sales over recent days were being broken into sub-Rs 2 lakh, to avoid quoting of the PAN, mandatory for any jewellery sale over Rs 2 lakh.

Gold was sold for as much as Rs 50,000 per 10g using the no-banned currency notes of Rs 500 and Rs 1,000.

Discounting of currency is also being reported to get rid of old notes. Hawala dealers are exchanging currency for up to Rs 125 a dollar (double the official rate), according to sources.

"Whether it is the deposit of cash or sale of goods in old currency note, we are keeping a watch and taking steps," Chandra said after inaugurating the CBDT pavilion at the India International Trade Fair.

The I-T department has already sent around 600 notices to jewellers across 25 cities, asking them to detail daily sales between November 7 and 10.

Teams from the Directorate General of Central Excise Intelligence are also visiting major jewellery stores and their manufacturing units, seeking these details, sources said.

Demonetisation: Strain on banking system as card use zooms 60%

National growth in card usage was 60%, with majority skewed towards debit card usage, report Anita Babu in Bengaluru and Namrata Acharya in Kolkata.

A 60% jump in card usage across India following the demonetisation move by the government has put a strain on the backend payment systems network, forcing customers to put off purchases of goods.

Since the Narendra Modi government scrapped Rs 500 and Rs 1,000 notes last week, first-time usage of debit cards has shot up by 30% and there has been a 20% increase in activation of card machines that were dormant, according to digital payments processor Innoviti.

The overall national growth in card usage was 60%, with the majority skewed towards debit card usage.

Banks also saw a jump in debit card usage across India, but one official, who confirmed the spike, could not immediately quantify it.

"There was heavy traffic in debit card transactions. A lot of people were using their cards for the first time, which further slowed down the system as many people could not recall passwords or follow instructions at automated teller machines," said Ravi Krishan Takkar, managing director and chief executive officer, UCO Bank.

Since Saturday, November 12, retailers and shopkeepers across India saw transactions fail at point-of-sale machines, forcing many people to skip purchase of goods, as they also did not have adequate cash to buy them.

In some of the retail outlets, customers had to wait for up to an hour to make payments. Adding to the woes of the customers, in some cases while debit-card transactions were shown as successful through alerts to buyers, but the merchants did not receive confirmation of those payments.

In other cases, transactions did not even initiate.

"I waited for quite long for my payment to go through. Ultimately, I had to give up the purchase because I was not carrying enough cash," said a customer at a retail hypermart.

Bengaluru-based Innoviti, backed by N R Narayana Murthy's Catamaran Ventures, which processes about 20% of the country's digital payments for businesses such as Reliance Retail and Titan, saw many customers transact less than Rs 500.

"The average increase across the country is about 60%. Average daily card (credit plus debit card) transactions are about Rs 1,400 crore (Rs 14 billion). These have gone up to about Rs 2,000 crore (Rs 20 billion) per day currently," said Rajeev Agrawal, CEO and MD, Innoviti Payment Solutions.

"The jump in transactions is driven disproportionately (200 per cent) by merchants in the lowest average ticket size band of Rs 1 to Rs 500. This suggests that people had cards but were not using in this segment," said Agrawal, adding: "The overall increase in transactions is more skewed towards debit card (75%), suggesting first-time card usage by hitherto inactive debit cardholders may be driving the transaction jump."

With the note ban, the government is encouraging more people to use digital payments for their daily transactions, while discouraging use of cash for such transactions.

The demonetisation plan has also inconvenienced millions of users across India, particularly poor people who were left with higher denomination notes and were unable to use those at counters to buy food or pay for local transport.

"Yesterday, there were reports of heavy traffic through card transactions, which had led to link failure for a few hours," said a bank executive.

The jump in card transactions was higher against the national average of 65% increase in card usage.

Majority of the spike in card payments has been in entertainment, restaurants and liquor, suggesting many consumers were not postponing spends, but simply moving from cash to card in these categories.

Meanwhile, a large number of ATMs remained closed and banks struggled to configure them to dispense new currency notes.

At United Bank of India, close to 60 per cent of the ATMs could be configured, even as long queues were noticed outside the ones which were working.

"We are expecting that by the end of the day, all the ATMs will be configured," said Pawan Kumar Bajaj, CEO and MD, United Bank of India.

Chit funds, private money lenders feel the heat

Overall, around 25 per cent of the deposits in chit funds are in cash, reports T E Narasimhan from Chennai

While the Centre's move to demonetise the Rs 500 and Rs 1,000 notes will have short-term impact on the Rs 35,000 crore (Rs 350 billion) chit fund sector, it will also clean up the segment.

Overall, around 25 per cent of the deposits in chit funds are in cash.

In rural areas, the proportion could be as high as 50 per cent.

T S Sivaramakrishnan, director of Balussery Benefit Chit Fund, and founder general-secretary of the All India Association of Chit Funds, said: "As we always say, unregistered chit funds are the worst enemy for us, and this would help to clean up the system."

According to him, instances of failure on the part of such unregistered players are incorrectly attributed to legitimate chit funds. He said people have already started calling the association about the fate of their cash with such operators.

The association is advising its members not to take bulk money since it will be a problem if detected by the income-tax department.

With defaulting chit subscribers now coming forward to clear their dues with old notes, companies are also in a dilemma.

"I think the I-T department can be a little lenient, as long as the accounted cash is coming into the system," said Sivaramakrishnan, adding cashflows for chit companies will certainly be affected for a month or two.

Bulk of the cash transactions, he said, happen in rural areas, but these wouldn't be in big-ticket deposits.

"Ours basically being a cash economy, even those who have no unaccounted cash were used to paying cash. It may take time for them to switch over to virtual modes of payment," he added.

Subhasri Sriram from Shriram Group, which does about Rs 250 crore (Rs 2.5 billion) worth of chit fund business a month, said: "It is too early to say how much benefit will happen in the future, but currently it is difficult for small businessmen, since they don't have enough cash to do business."

"We'll have a delay in payment of around 15 days. The money supply is being rationed out. It's just a question of time to get the currency printed and taken to the branches. It is a temporary issue," he added.

K P Geevarghese Babu, general secretary of the All Kerala Association of Chit Funds and a local leader of All Kerala Private Bankers Association, an organisation of lenders who offer gold loans and loans on promissory notes, said the chit funds and private lenders in Kerala were badly hit by demonetisation.

He said the chit funds, which were collecting Rs 1 crore to Rs 1.5 crore (Rs 10 million to Rs 15 million) a day, are now collecting a few lakhs now.

Since Friday, a majority of the chit funds stopped collection of money since all the cash has been coming in Rs 500 to Rs 1,000 denominations.

"While the customers are bringing in legitimate money, the apprehension is whether there would be regulatory action if we collect it, considering the notes are not meant to be in transaction from midnight of November 8," said Babu.

Private money lenders, in a meeting of the association held on Sunday, decided to stop collection of money temporarily, he added. The sector expects the situation to stabilise in some weeks.

Demonetisation last straw for jewellery firms

This year has been a washout for jewellery companies due to a sharp increase in the price of gold, reports Dilip Kumar Jha from Mumbai.

This year has been a washout for jewellery companies due to a sharp increase in the price of gold and a number of measures taken by the government to disgorge black money.

Scrapping high-value currency notes was the last straw.

The decline set in this February, when people stayed away from buying gold on expectation of a duty cut. The Budget imposed an excise duty on gold jewellery and this was followed by a 42-day strike by jewellers that crippled demand.

The government also toughened the requirement for disclosing PAN numbers when buying jewellery worth more than Rs 2 lakh.

Despite a 21 per cent rise in gold prices in 2016 (15 per cent in dollar terms) sales and profits of jewellery manufacturers and retailers have remained flat to negative.

Titan, the industry leader, reported a 32 per cent decline in sales in July-September.

High bullion prices and revaluation of inventories at higher prices helped jewellery companies pull through.

Following robust Diwali sales, jewellers were expecting a sparkling wedding season as gold prices had stabilised.

But the sentiment was reversed on November 8, when the government cancelled the legal validity of Rs 500 and Rs 1,000 currency notes.

"The year is going to be a washout for the jewellery sector," said Mehul Choksi, chairman and managing director, Gitanjali Gems, one of India's largest branded jewellery manufacturers and retailers.

The World Gold Council reported a 29.14 per cent fall in gold demand at 441.20 tonnes in January to September from 622.6 tonnes in the corresponding period last year.

Somasundaram P R, managing director, WGC, had estimated demand for gold at 210 tonnes in October-December, which could take the annual demand to 650 to 750 tonnes.

The currency move is likely to affect this projection.

"With the demonetisation, common consumers, who contribute around 60 per cent of jewellery sales, are affected," said an industry executive.

"Consumers will lose faith in currency and repose faith in bullion and ornaments," said Rajesh Mehta, managing director, Rajesh Exports.

Money-pooling schemes, buying stocks under I-T lens

Demonetisation had led to increased detection of illegal money-pooling schemes, reports Shrimi Choudhary from Mumbai.

In order to identify the prospects of misuse of phased out high-value notes, tax and enforcement authorities have asked regulators to furnish details of all kinds of money-pooling schemes as such a practice is believed to have suddenly become active in managing black money.

Besides, the income-tax department is said to have also asked various market intermediaries such as brokerages and depositories to report physical buying of shares or mutual funds of worth Rs 50,000 and above.

Tax authorities have noted that the demonetisation drive had led to increased detection of Ponzi schemes or illegal money pooling schemes to hide unaccounted wealth.

According to the income-tax sources, the department is keeping tabs on the mobilisation of funds, which is being regulated by different regulators.

"There is a huge element of money laundering in illegal public deposit schemes across the country, which is said to have increased due to partial demonetisation of the currency," said a senior I-T official.

At present there are more than 10 such types of deposit-taking and money-pooling schemes and each is governed by a different set of rules and often falls under the ambit of different regulators.

For example, the mobilisation of funds by non-banking finance companies is regulated by the Reserve Bank of India; gold savings schemes by jewellers are regulated by RBI and the ministry of corporate affairs.

Some chit funds come under state authorities and collective investment schemes are under the Securities and Exchange Board of India.

Taking advantage of people's discomfort on disclosing their cash deposits to banks, the promoters of such schemes lure investors to a scheme by promising high returns on investment while also guaranteeing the security of the investment made by them, explained the official.

On the cash buying of stocks and mutual funds, experts feel it is cumbersome to detect such a practice.

"It is difficult to keep account of physical buying of mutual funds as very few among them accept cash. The customer needs to go to the particular bank branch which a fund house or asset management company has the tie up with. “Typically, AMCs are supposed to report to authorities on a monthly basis if there is a purchase beyond the limit (up to Rs 50,000), irrespective of whether paid for by cash or cheque. However, with the intent to escape tax scrutiny, people usually pay Rs 49,999," said a market expert requested anonymity.

Establishing money laundering is yet another challenge for tax authorities, say experts. "It is strenuous to find a link to demonetisation of existing Rs 500 and Rs 1,000 currency notes with investment of cash into stock markets. Though some amount of nefarious activities by back-dating transfer of securities and payment obligations under a contract or collateral requirements cannot be ruled out -- which also cannot be said to be CIS to be regulated by Sebi. That will typically be a fraud, if at all," said Sumit Agrawal, former Sebi official and partner, Suvan Law Advisors.

However, chances of any intermediaries using money mules to legalise their stashed currency by scheming gullible people or using benami demat accounts to knowingly or unknowingly act as investors for channeling illegal cash into the stock exchange system is also difficult due to the mandatory PAN and KYC, Agrawal said.