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  Meanwhile, the rules for the exchanging and depositing of demonetized notes were amended repeatedly. The upper limit on how much money could be exchanged in a day was frequently changed causing confusion in the minds of both citizens and bank staff. It started initially at `4,000, then went up to `4,500 for three days, then dropped down to `2,000, and then finally the option to exchange money was removed completely.

  The proposal to raise the limits on cash withdrawal from ATMs had to be scrapped because of the slow pace at which ATMs were being recalibrated.

  Spokespersons of the government tried to justify these frequent amendments as proof of the sensitivity of a responsive administration to citizens’ feedback. Lamentably, even a cursory reading of the notifications shows that they were simply not thought through, and the reversals and amendments were often no more than knee-jerk responses to public anger and ridicule.

  On 14 November, five days after demonetization, all DCCBs were banned from accepting deposits of the banned currency notes due to the fear that black money would be laundered through this route. This move caused widespread distress in rural areas. Farmers across the country who had just sold their kharif crop were holding cash in the demonetized 1,000 and 500 notes. Unable to deposit their hard-earned savings in their respective DCCBs, they found it impossible also to open new accounts in public sector banks, besieged as they were by demonetization queues. In a single stroke their entire working capital and life’s savings had been rendered worthless – a move that was appalling for its injustice, and unforgiveable for its callousness.

  In addition, farmers now had no usable money to buy seeds or fertilizers or pay labour for planting the rabi crop. The DCCBs, who customarily played a significant role in providing credit to the farm sector, were faced with a liquidity crisis, as the RBI had also barred the DCCBs from depositing the junked notes with them, claiming the notes had no legitimate trail to prove their source. Since the RBI refused to exchange the demonetized currency they had already accepted from their account holders – a majority of whom were farmers – they moved the Supreme Court for redressal, claiming the notes collected by them were legitimate.43

  In the meanwhile, farmers suffered. Deprived unfairly of their own money and unable to take loans from their bankers, they were forced into the arms of usurious moneylenders just to have enough money to survive and to plant the next crop. The anger and protests by farmers across the country, since demonetization, are both understandable and justified in view of the devastation they suffered because of the note ban.

  Another RBI circular which caused a great deal of confusion and ridicule was the poorly considered notification instructing banks to mark a customer’s fingers with indelible ink after he/she had exchanged money.44 In an attempt to prevent customers from exchanging more than the stipulated limit of `2,000, the RBI instructed banks and post offices to ‘put indelible ink mark on the right index finger of the customer so as to identify that he/she has exchanged the old currency notes only once’. It further stated that, ‘Each bank branch will be provided with black indelible ink bottles of 5 ml each’, and ‘The indelible ink can be applied by the cashier or any other official designated by the bank before the notes are given to the customer, so that while the exchange of notes is taking place, a few seconds elapse which will allow the ink to dry up and prevent removal of ink.’

  Customers responded with indignation, while the Election Commission of India (ECI) responded with alarm! The ECI wrote to the MoF not to use indelible ink in banks for marking people, reminding it that five states were going for by-polls on 19 November and raising concerns that this would cause confusion. Meanwhile, as there was only one company45 in India that made this ink and there wasn’t enough ink to meet the demand from lakhs of bank branches, bank staff started using products such as dhobi ink and permanent markers to mark the customers.

  The notifications on ‘withdrawals for weddings’ were even more absurd. The demonetization announcement came at the peak of the wedding season in India, and stranded many families without cash to pay for wedding expenses. Faced with a barrage of media reports, on 17 November, Shaktikanta Das told reporters that families having weddings would be exempted from the general cash limits and would be allowed to withdraw up to `2,50,000. The Department of Economic Affairs in the MoF swiftly issued S.O. 3488(E) on 18 November, authorizing such withdrawals.

  Then, fearing they may have opened a Pandora’s box, the Finance Ministry, on 19 November rolled back the new provisions. It then issued a fresh notification specifying that the withdrawals would be subject to RBI guidelines, which, of course, had not yet been issued.

  On 21 November, the RBI finally issued its own notification46 laying down an incredibly complex procedure to be followed before any cash could be drawn. They had to provide ‘Evidence of the wedding, including the invitation card, copies of receipts for advance payments already made, such as marriage hall booking, advance payments to caterers, etc.’ The conditions stated that those withdrawing cash for wedding expenses would need to submit ‘a detailed list of persons to whom the cash withdrawn is proposed to be paid, together with a declaration from such persons that they do not have a bank account. The list should indicate the purpose for which the proposed payments are being made.’

  Banks were instructed to ‘keep a proper record of the evidence and produce them for verification by the authorities in case of need’, making stressed bankers, who were already drowning in extra paper work, throw up their hands in despair. Facing enormous criticism, RBI diluted the norms slightly the next day, and declarations were only required for cash payments of more than `10,000 to a single person.

  The deaths of three distraught fathers were attributed to the demonetization. Sukhdev Singh of Punjab died of a heart attack as no one was accepting the money he had saved for his daughter’s marriage.47 Jagdish Pawar of Rajasthan too died of a heart attack, stressed over not having enough cash for his daughter’s wedding. Suresh Sonar of Uttar Pradesh died from the same reason after failing to exchange currency notes for the money needed for his daughter’s Tilak ceremony.48 As a distraught parent said, ‘We have been running around for three days trying to prove to bank officers that our daughter is genuinely getting married! We have saved all our lives for this day and now we cannot get our own money to pay for our child’s wedding.’49

  The final straw was the RBI notification50 on 19 December stating that customers could henceforth only deposit amounts in excess of `5,000 once during the remaining period till 30 December 2016, adding, ‘The credit in such cases shall be afforded only after questioning tenderer, on record, in the presence of at least two officials of the bank, as to why this could not be deposited earlier and receiving a satisfactory explanation. The explanation should be kept on record to facilitate an audit trail at a later stage. An appropriate flag also should be raised in CBS (the Central Banking System) to that effect so that no more tenders are allowed.’

  Vexed bankers and irritated customers vented their spleen, and social media was filled with caustic jokes. WhatsApp messages went viral advising people to use the explanation ‘I believed my Prime Minister and my Finance Minister when they said I could deposit notes till Dec 30’. Realizing the ridiculousness of what they had done, the RBI reversed the notification the next day, albeit only for customers with ‘KYC compliant accounts’.

  On 30 December, President Pranab Mukherjee signed the Specified Bank Notes Cessation of Liabilities Ordinance, 2016. The ordinance stated that the SBNs (old `500 and `1,000 notes) would cease to be liabilities of the RBI from 31 December 2016. Further, these notes would no longer be guaranteed by the Central Government. Also, that holding the notes would be an offence and punishable with a minimum fine of `10,000, or five times the value of notes possessed, whichever was higher.

  The same day, a notification was issued by the Department of Economic Affairs permitting a grace period for depositing the demonetized notes only for Indian citizens who had gone abroad (for three mo
nths till 31 March 2017) and for Non-Resident Indians or NRIs (for six months till 30 June 2017).

  The RBI website explained the combined net effect of the ordinance and the notification.

  The only people who could exchange old notes at the RBI’s counters after 30 December 2016 were Indians who were abroad between 9 November and 30 December and NRIs.

  NRIs could only deposit `25,000 as per FEMA law restrictions, and they would have to physically show the old `500 and `1,000 rupee notes to customs officials at the airport and get a declaration form stamped before they could deposit the demonetized currency in RBI during the grace period. The RBI designated five offices – Mumbai, New Delhi, Chennai, Kolkata and Nagpur – to exchange the old notes.

  This was totally inexplicable and yet another U-turn on the promise that the Prime Minister had made in his address to the nation on 8 November 2016 when he had said, ‘There may be some who for some reason are not able to deposit their old 500 or 1,000 rupee notes by 30 December 2016. They can go to specified offices of the Reserve Bank of India up to 31 March 2017 and deposit the notes after submitting a declaration form.’

  On 8 November, in the gazette notification through which the demonetization decision was announced, the RBI itself had stated, ‘Any person who is unable to exchange or deposit the specified banknotes in their bank accounts on or before 30 December 2016 shall be given an opportunity to do so at specified offices of the Reserve Bank or such other facility until a later date as may be specified by it.’

  In contravention of these promises, why was the exchange facility till 31 March 2017 denied to Resident Indians? For NRIs, why were RBI’s remaining 26 offices covering other states not opened up? Why was Maharashtra given two locations for this exchange facility, when Kerala, which accounts for 10 per cent of the India’s NRI population and 40 per cent of the inward foreign exchange remittances, was given none? There were no answers.

  In response to PIL cases filed on this matter, the SC questioned the government’s decision to deny people the facilities to exchange their old `500 and `1,000 notes till 31 March 2017, stating: ‘If one can establish that the money was his or hers, you can’t deprive them from depositing the money… If there is a genuine person with valid reasons, he should have an opportunity to say that he has failed to deposit his money, and he must be given a window.’

  In July 2017, the SC issued notices to the RBI and Finance Ministry on a plea seeking extension for exchange of demonetized notes by siblings Arushi Jain, 22, and Apurv Jain, 25, whose parents had died in a road accident nine years earlier. The siblings were minors when their parents died. The bank lockers were finally opened on the directions of the Succession Court, Saket by an order dated 17 March 2017, two and a half months after the demonetization deadline.

  However, the government refused to allow people to deposit the demonetized notes beyond the 30 December 2016 deadline, saying, ‘it would defeat the very purpose of demonetization, that is, elimination of black money.’

  Representing the government, Attorney General Mukul Rohatgi made the extraordinary statement that the Prime Minister’s promises did not matter if his government did not stick to them in the legal notification that followed. ‘If the Prime Minister has made the announcement in television that deposit can be done till March-end next year [2017], but subsequent law says one can’t do so, the law will prevail but not Prime Minister’s statement.’51

  On 5 January 2017, a disturbing video was aired on national media showing a woman, apparently quite poor, stripping in front of the RBI’s New Delhi office, in frustration at not being able to exchange two old `1,000 notes and four old `500 notes. She had apparently been refused entry to the RBI on two successive days. The video showed policewomen taking her away, while her one-year-old son cried pitifully beside her.

  A few days later, there was a report of an elderly widow, who lived in a remote village as a recluse after the death of her husband and only child. She subsisted on what she grew and went into the nearest town only every few months to draw her pension. Her life’s savings were literally held under her mattress. She was not aware of demonetization, and was devastated to hear that all the money she had was now worthless and could no longer be exchanged at any bank or at the RBI, even if she made the long trip to one of their five designated offices.

  The authorities dismissed these and numerous similar reports as ‘anecdotal’ stories. The RBI did not respond.

  What was the reason for the RBI’s out-of-character behaviour throughout the demonetization, the lack of forethought, the poor planning and the frequent policy reversals culminating in its reneging on its commitment in the gazette notification of 8 November?

  Usha Thorat, former Deputy Governor of the RBI,52 summed it up succinctly: ‘It is indeed a sad day to see one of the most respected public institutions in India becoming an object of ridicule and scorn. There have been times when the Old Lady of Mint Street was criticised for being too conservative and cautious – for not being able to keep up with innovation and markets – but never has she been accused of not knowing her job. Never has she been the butt of as many jokes as in the last few days… Doubts have been expressed on the double counting of old notes returned to the RBI. There are press reports that the data furnished by the RBI on notes issued between 10 December and 19 December do not tally between the pieces and values. Data on notes returned to the RBI after 12 December has not been officially released – this is generating enormous speculation whether the notes returned exceed the notes issued. The RBI would do well to release every week, say, every Monday, data on the notes issued, denomination and value-wise, as also on old notes returned, to set all speculation to rest.’53

  Putting in words what many had suspected, Thorat summed up the RBI’s dilemma. The government’s stated prime rationale for the note ban was extinguishing black money. However, as the country deposited its cash into the banks, it was soon clear that practically all the money that had been demonetized was coming back into the system. This could mean only three things:

  There was no black money

  That whatever black money there was, had been converted into white money

  That the RBI data was wrong

  Given that the first two options were unlikely, it seemed that the RBI was being pushed into a corner with respect to the third.

  Media speculated that the repeated about-turns in policy, the 19 November notification of the `5,000 deposit limit, and the restrictions on cash deposits at RBI counters post 30 December were all part of a strategy attempting to try and slow down the avalanche of cash that was coming in to the banks.

  Further, given the complete absence of data on notes returned after 12 December 2016 and the refusal to respond to RTI queries, many surmised that the RBI’s uncharacteristic silence was a consequence of the pressure it was under to ‘show’ the right numbers.

  Fall from Grace

  Demonetization extracted a heavy price from banks and bankers.

  Bank staff across the country worked punishingly long hours. All regular banking activity came to a stand-still – opening a new bank account or getting a loan became impossible. Bankers simply had no time for customers as they struggled to count old notes and to disburse new notes, while complying with the RBI’s frequently changing notifications.

  The note ban took a heavy toll on their health. Some literally paid with their lives.54 S.K. Sheriff, 46-year-old Deputy Manager, SBI, Andhra Pradesh, collapsed working 14 hours a day and died in the hospital. Prem Shankar Prajapati, 33-year-old cashier from Gujarat, committed suicide due to stress. R.V. Rajesh, aged 51, a bank employee in Maharashtra, had a heart attack and died. Noel Topno, aged 52 years, Chief Manager, Central Bank of India, West Bengal, died of a cardiac arrest while working.

  While the vast majority of bank staff were doing their best, there were, sadly, a few rotten apples. As India stood in queues and struggled to get a few new notes, some people mysteriously managed to obtain fat bundles of brand new `2,000 and
`500 notes.

  Armed with mobile camera phones, citizen journalists started sharing videos on social media of certain bank managers surreptitiously handing wads of notes to VIP clients through back doors and windows. Soon, national TV channels also started airing their own sting operations.

  Bankers, already reeling under the pressure of the note ban, now had to face to wrath of the public. Citizens, exhausted and enraged by the never-ending queues, assumed that all banks were guilty of such collusion and made bankers their target. There were stone-throwing incidents at many branches, and bankers everywhere in the country were subject to abuse and derision.

  By the end of December, officials of several major banks were fired or arrested for alleged illegal conversion or exchange of demonetized currency notes.

  Here is an illustrative, though not exhaustive, list culled from various press reports:55

  On 3 December 2016, HDFC Bank announced that it had sacked four employees, including a branch manager, for allegedly indulging in unauthorized exchange of demonetized currency notes.

  On 4 December, the Enforcement Directorate arrested two managers of the Kashmere Gate, Delhi branch of Axis Bank for converting black money into white, by reportedly misusing banking transfer systems like Real Time Gross Settlement (RTGS) and National Electronic Fund Transfers (NEFT). The duo was arrested after two people were caught with `3.5 crore cash in new currency.

  On 9 December, tax officials seized over `100 crore from 44 suspect accounts from an Axis Bank branch in the Chandni Chowk area in Delhi.

  On 15 December, Income Tax officials raided an Axis Bank branch in Sector 51 in Noida and froze 20 suspect accounts with deposits totalling around `60 crore.

  On 17 December, the CBI arrested two employees of the cash department of RBI in Bengaluru in connection with the alleged conversion of `1.99 crore of demonetized currency into new notes. The CBI statement said that the accused, along with other unknown officials entrusted with the responsibility of new currency notes ‘fraudulently’ gave away new notes to the tune of `1.99 crore to RBI officials and others.