The Reserve Bank of India (RBI) took a U-turn on Wednesday as it withdrew its restrictions that deposits of above Rs 5,000 in banned banknotes can be made only once till December 30.
The central bank said deposits in excess of Rs 5,000 will be allowed more than once till the stipulated date, but the depositor’s bank account should be compliant with customer information details, called KYC.
People with non-compliant accounts will have to get the KYC done before depositing scrapped 500- and 1,000-rupee notes.
The RBI’s about-turn is the latest in a series of policy tweaks after the government recalled the high-value bills. The “flip-flop”, the Congress said, made the RBI “Reverse Bank of India”. The CPI(M) alleged that the government was operating whimsically over its demonetisation drive, while the Aam Aadmi Party said the confusing rules reflect that the government has “lost control over banks”.
The RBI rule reversal happened on a day the Centre approved an ordinance to amend the payment of wages act, which will allow business and industrial establishments to pay salaries electronically or through cheques.
Employers will also have the option to pay wages in cash.
The ordinance route was taken after the Payment of Wages (Amendment) Bill, 2016, which was introduced in the Lok Sabha on December 15, couldn’t be ratified because of the government-Opposition standoff over demonetisation and the subsequent cash crunch in the country. The winter session of Parliament ended on December 16.
An ordinance is valid for six months and the government is required to get it passed in Parliament within that period. At present, salaries can be given through cheque or transferred to a bank account with written authorisation of the employee. The ordinance removes the condition.
Bankers and people alike welcomed the RBI’s decision on Wednesday. The restrictions had sparked public outrage and doubled the work for bank staff, already grappling with growing queues and cash shortage.
“RBI has responded to public opinion at large. We faced difficulties as the format was not standard, giving rise to technical difficulties in the new rule,” a State Bank of India senior executive said.
At the time of demonetising the high-value bills, the government had said people should not panic and crowd banks, and that they had enough time to deposit or exchange their money.
“Now, I can deposit without worrying to carry all cash at once. Also, it is scary to give explanations and explain the source of the cash which was my mother’s savings at home for all these years,” said Sunny Joshi, a customer at HDFC Bank.
The government pulled out 500-and 1,000-rupee bills on November 8, in an effort to fight a parallel ‘black economy’, and has since announced near-daily changes to banking rules to manage the transition. The banned notes can be deposited in banks till December 30 and thereafter at select RBI counters till March 31.
But the shock move has led to a severe cash crunch. Cash withdrawals from banks have been restricted to Rs 24,000 per account per week, although most banks are unable to provide even that. The government has said it will replenish most of the withdrawn cash – about 86% of the money in circulation -- with new 2000-and 500-rupee notes.