DEMONETIZATION , SIX LAKH CRORES AND PSU BANK NPA’S

Section 26(2) of the RBI Act says

(2) On recommendation of the Central Board the [Central Government] may, by notification in the Gazette of India, declare that, with effect from such date as may be specified in the notification, any series of bank notes of any denomination shall cease to be legal tender [save at such office or agency of the Bank and to such extent as may be specified in the notification].

What few Indians know is that there is only one Currency Note in India that is the One Rupee Note

Every other note is a Promissory Bank Note issued by the Reserve Bank of India It is basically a promise by the RBI to pay the bearer of the note the equivalent amount in legal currency

 

one-rupee-noteThe One Rupee legal tender is signed by the Secretary of Finance Government of India

five-hundred-rupees

2000-rs-note-1170x480 Both Bank Notes and Currency Notes are legal tender

Every RBI Promissory Note is also guaranteed by the Government of India What this means is that the Government of India is in a way BOUND by the amount  of Promissory notes the RBI prints out

Just take out any RBI promissory note from your pocket (10.20,50.100.500.2000) they all have the same promise by the RBI Governor and the same guarantee by the Government of India

So effectively when Modi grandiloquently declared that the 500 and 1000 Rupee “Notes” were rendered valueless what he was really saying is that this series of promissory notes by the RBI will be replaced by a new  set of  promissory notes The legal liability of both GOI and RBI to the millions of holders of these promissory notes remained the same

The RBI and GOI are legally bound to pay out to the “demonetized’ 500 and 1000 Rs note holders the EXACT number of One Rupee Currency Notes whenever the holder presents the note to the RBI for exchange (under RBI Rules and Regulations)

Which makes knowing exactly HOW MANY promissory notes the RBI had printed as of 8th November 2016 very important

But the Government of India and the Reserve Bank of India dont event seem to be n the same page with regard to the number of 500 & 1000 Rs notes in existence ON 8th November 2016

On Tuesday(29112016), in a reply in Rajya Sabha, the Minister of State for Finance, Arjun Ram Meghwal, said that there were 17,165 million pieces of Rs 500 notes and 6,858 million pieces of Rs 1,000 notes in circulation on November 8, 2016, the day Modi made the announcement of demonetising the two high denomination notes. The total amount of high denomination currency circulating in the system on that day was, thus, Rs 15.44 lakh crore (Rs 8.58 lakh crore in Rs 500 notes and Rs 6.86 lakh crore in Rs 1,000). Source the Indian Express

On 19122016 an RTI response to Mumbai-based activist Anil Galgali from Reserve Bank of India said that on November 8, it had Rs 9.13 lakh crore in 1,000 rupee notes while Rs 11.38 lakh crore in 500 rupee notes . Source Hindusthan Times /PTI Thats 20.51 lakh crore (301 Billion $) Rs wiped out as legal tender

Now theres a huge gap (nearly 6 lakh crore)  between the 20.51 lakh crore bank notes the RBI says it had put out and the 14.5 lakh crore the Minister of State quoted

Both the numbers quoted were given by responsible ranking officers In case of the Goverment by a Minister in Parliament and in case of the RBI in response to a statutory (RTI) request

Strangely theres another figure that comes close to such a huge sum of 6 lakh crores

As on September 30 2016, gross NPAs of public sector banks rose to Rs 6,30,323 crore . NPA is used by financial institutions that refer to loans that are in jeopardy of default.Also note the 6 lakh figure was on September 30 2016 38 days before the demonetization announcement

THE DIFFERENCE BETWEEN THE GOVT FIGURE AND THE RBI FIGURE IS STRANGELY CLOSE TO THE STICKY LOANS BY PUBLIC BANKS TO BIG BUSINESS

The Government keeps saying it might not reprint the entire amount of 14.5 lakh crore Now it seems there were 20.51 lakh crore RBI promissory notes in existence and the Government is going to reissue less then 14.5 lakh crore new notes

More then 6 lakh crore or nearly one third of value the promissory notes in existence on 8th November 2016 have been taken out and might not be replaced

THE WRITE OFF OF 6 LAKH CRORE EFFECTIVELY SUBSIDIZES BAD LOANS TO BIG BUSINESS

Who will be the losers in this massive WRITE OFF OF LEGAL TENDER?

THE RICH AND SUPER RICH HAVE ALREADY CONVERTED OR ARE IN THE PROCESS OF CONVERTING  THEIR BLACK MONEY INTO LAND GOLD OR FOREIGN ASSETS THEY CAN RIDE OUT THE COMING STORM

Many economists are talking of an economic slowdown and possible recession

The unorganized sector will be hit the hardest and the longest

The money not coming in to the banking system will probably include small black money by small traders , small middle class untaxed money and worst of all the poorest of the poor like tribals who may have not even heard of demonatization or who might not have been on time to exchange their old notes and who dont have bank accounts so cant deposit their old notes anywhere

All of which means its the poor and the middle class who will be left handling the mess to come

 

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