A fatigued system

ONE of the big ironies of demonetisation has been that the banking industry, which caught the first blast of the shock waves of demonetisation, has spoken so little about the unprecedented crisis it has undergone. Instead, the chiefs of the banks, public as well as private, have sung paeans to demonetisation even though it wrecked their business, exposed their staff to unprecedented stress and reduced the entire banking machinery in the country to nothing but glorified cash dispensers. Through all this, it was only the unions in banks that stood up to speak about how for several months banks had to virtually suspend their normal business activity in order to collect and dispense cash. And the burden of asking searching questions—from the Prime Minister, the Finance Ministry and the Reserve Bank of India (RBI)—on behalf of a hapless industry, too, fell on the unions. Thomas Franco, general secretary, All India Bank Officers Confederation, who has been an outspoken critic of demonetisation, spoke to Frontline about how Indian banking would take a very long time to recover from the battering it has suffered in the wake of demonetisation. Excerpts from the interview:

One of the lesser-known aspects of demonetisation is about the kind of pressure and stress bank employees faced, because they were the ones facing the public’s wrath after demonetisation, especially in the first three or four months.

Initially, especially on the first day, people were tolerant. They were only worried about getting some money. Although the RBI had announced that currency would be available with banks, cash had not reached most bank branches across the country. It had sent some currency to the currency chests of the specialised Currency Administration Branches of banks, in some cases about two weeks before the demonetisation announcement. Staff at the currency chests had been told not to open the boxes containing currency. I had seen that most branches had not received adequate supply of currency on the first day banks were open to the public after the announcement. The huge queues at banks meant that bank staff had to be deployed in tasks completely beyond their normal line of work—arranging shamianas for the huge crowds that had gathered at banks and generally counselling distressed people who desperately wanted some money. Chaos reigned. After about a week, people started getting angry with the bank staff.

The irresponsible manner in which the RBI kept issuing statements that adequate currency was available with banks only infuriated people even more because they started assuming that bank staff were not giving them their money. Moreover, although RBI set a limit of Rs.24,000 a week to every customer, faced with the severe shortage we had to dispense scarce currency by rationing it to much lower limits. Things got even more complicated because the RBI was making changes and amendments to its initial notification almost on a daily basis. For instance, it said higher limits were permissible for marriages. But when the actual circular reached the banks they found the complicated conditions attached to such withdrawals made it practically impossible to administer. How was a hapless customer to understand that bank staff were not responsible for not allowing them to withdraw their own money? All this meant bank staff had to face the wrath of the people for no fault of theirs. Neither the RBI nor the Finance Ministry did anything to own up responsibility for the mess they had created.

The load on banks was aggravated by the fact that ATMs had not been recalibrated to handle the new notes. I have seen senior bank employees reduced to tears by abusive customers who were desperate. There were even a few deaths of bank employees—in Bhopal, Hyderabad and other places—while on duty because of the severe stress they had to undergo. In none of these cases has the government given any extra compensation. Soon after the announcement of demonetisation, seven State Bank of India employees and their van driver died in Uttar Pradesh in an accident, but even in this case the bank management has refused to give employment to their nearest kin on compassionate grounds.

Apparently, even overtime that was to be paid to employees during the initial period has not been paid…

Yes, it has not been paid in most banks. Different banks have followed different methods for calculating the extra wages due to employees for having worked far beyond regular working hours and for having worked on holidays. The SBI paid Rs.6,000 for the first two days and Rs.5,000 for the two days following that, but nothing more after that. We are still fighting with the management for compensating us for the work we had done during the initial months after demonetisation. Some banks have paid no extra allowances at all. In several others only a token amount of about Rs.500 has been paid to employees. We raised this issue recently with the Indian Banks Association—the association representing bank managements—when we went for wage negotiations.

But banks’ expenses must have also shot up during this period, especially because they were forced to handle tasks that were peripheral to their main task as a banking institution.

Banks were saddled with huge expenses that arose as a direct result of demonetisation. Some of the senior officers at banks have also raised this with the Finance Ministry, that they need to be compensated for this. But the Ministry has simply refused to address this issue. According to one estimate, banks incurred costs to the tune of about Rs.8,000 crore. First, banks had to incur the cost of recalibration of ATMs for which they were not paid anything. Second, they had to incur higher staff and logistical costs. Third, there were costs on security and logistics that were incurred in order to manage the crowds at branches across the country. Fourth, even storing the demonetised currency meant additional storage costs and the security costs associated with it; the RBI’s failure to quickly evacuate such currency posed an additional burden.

Above all, bank staff could not do any of their normal banking work, which meant huge losses in terms of business revenue. Nobody in the government, the RBI or even bank managements would even dare to compute such losses. Banks had to abandon the follow-up on recovery of NPA accounts, nor could they pursue new business for lending. The irony is that we had huge amounts of money (because of the increase in deposits, on which banks had to pay interest), but we could not lend!

But things have not got better for banks even after the cash shortage has eased since last November.

The entire economy was hit by demonetisation. For customers, repayment of loans became difficult. Credit offtake also slowed down. Many companies are functioning at reduced capacities—at just 30-50 per cent capacity in many cases. The level of NPAs is still rising. Many of our customers—farmers, small industrialists and others—are saying that demand has not picked up even now. Obviously, these conditions are affecting the banking sector.

Looking back, what do you think was the motive for undertaking demonetisation?

In my opinion, the government was desperate to show that it was doing something. It also wanted to demonstrate that people would stand by it even if it took “tough” decisions. I do not think the government was foolish to think that black money would be wiped out by demonetisation, but it wanted to show that it was doing something to attack the menace. It is also true that, at least initially, many people believed this.