‘Banks have suspended all normal operations’

ON the night of November 9, a day after Prime Minister Narendra Modi unleashed his “surgical strike” against “black money”, eight employees of State Bank of India (SBI) were killed in an accident. The eight—four officers, including a branch manager, three staff members and the driver—were killed while returning late in the night after making arrangements to meet the flood of customers expected at the bank the following morning. Since then, reports of more casualties of bank employees have come from other parts of the country, indicating the extent to which this section of the workforce has been subjected to hardship in the wake of the unprecedented crisis in Indian banking. Thomas Franco, senior vice president, All India Bank Officers Confederation (AIBOC), who is also an officer with SBI, spoke to Frontline about how bank employees have borne the brunt of the chaos that has hit banking operations in the country. Excerpts:

As an insider, what is the scale of the problem as you see it? We can see the long queues at banks and ATMs, but what has it been like from the inside? What does it mean to be a bank employee in these times?

I am not even going into the issue of whether the move will eliminate black money. But one thing is clear: the decision was taken without proper planning. It is said that this was because things had to be kept secret. Compare this episode with what happened at the time of bank nationalisation in 1969. On July 18, 1969, Morarji Desai resigned as Deputy Prime Minister. Even as this was happening, a small group was working on how to go about the business of nationalisation, including drafting the ordinance to enable it. Morarji Desai was not in favour, so Indira Gandhi wanted him to quit; she created a situation in which his continuation became untenable. The point I am making is that the move was prepared so well and with great political and administrative cleverness.

But, in this case, some basics have been forgotten. When the government was planning to withdraw currencies that account for the overwhelming proportion of the value of currency in the financial system, should there not have been a plan to print the new notes that are to replace them? If they could print the Rs.2,000 note, which was not even in existence earlier, why did they not show any urgency in quickly getting the Rs.500 note into the system? Even now the new Rs.500 note has not reached most parts of the country, especially the south.

Bank employees had no clue about how to deal with the situation when the banks opened two days after Modi’s announcement. The forms required for exchanging the old notes were not ready and the software to ensure compliance (while surrendering old notes) was delayed. But worst of all, the new currency had not reached most branches. The entire burden of making payments to customers fell on the poor hundred-rupee note.

The currency management in banks is centralised. For instance, in the case of SBI there are three currency administration cells catering to the entire Chennai Circle. These are coordinated by a centralised Currency Administration Branch, which is the nodal point for receiving remittances from the Reserve Bank of India [RBI]. This was the bottleneck in the emergency that was unfolding on November 10. This meant that although queues were building up from 7 in the morning, the cash did not reach most branches (even in urban centres) till about noon. Meanwhile, the crowds were naturally getting restive. The result was that on the 10th, almost all branches of SBI worked up to 9 or 10 p.m. just to disburse cash.

But did you have cash until then?

Another funny thing: even the RBI did not have fresh 100-rupee notes, so when we ran out of notes, we went to the RBI asking for remittances. Faced with the massive shortage, the RBI gave back to us the soiled notes we had surrendered earlier. We had to spend even more time sorting the soiled notes, using what was reusable. All this took even more time. And, these notes cannot be put in ATMs because they would get jammed. This is one reason why so many ATMs went out of order so quickly.

But the ATMs need to be recalibrated so that they can dispense the new notes…

The new notes cannot sit in the existing cassettes in the ATM. Recalibration started only a week after Modi’s announcement. The irony is that we had not got the notes but started the recalibration process. Most ATMs can accommodate currency worth Rs.2.1 lakh if they are dispensing only 100-rupee notes. This means that an ATM can cater to only 105 persons if each draws the maximum allowed value of Rs.2,000. But there were at least 300-400 people at most ATMs.

Some years ago, the RBI allowed the outsourcing of ATM-loading operations, which are conducted by five-six agencies. Soon after Modi’s announcement, the agencies had to first evacuate the currency that had become invalid. For the first three-four days the amount of cash in ATMs and that reflected in the system were not tallying. This had to be escalated to the currency administration cells of banks; in many places there were disputes about how much cash ought to be in the ATMs when they were emptied. This could be because of glitches in the ATM. But what I have gathered is that since these agencies cater to several banks, they maintain their own currency chests. They may have taken currency from one bank’s ATM and moved it into another’s. Most of these agencies do not allow us to verify their currency chests to ensure compliance. And, in any case, our ATM nodal officers were overburdened—most of them are handling 100 ATMs—to do anything about this anyway. In effect, most ATMs started working after five days, that too dispensing only 100-rupee notes. Only by November 15 did some of our ATMs start dispensing Rs.2,000 notes. Each ATM has to be visited by two engineers and two “joint custodians” of the outsourced agencies. The reports I get suggest that it takes about one hour to recalibrate an ATM.

What has been the feedback you have got from staff working in rural areas?

I have heard from colleagues that the worst affected are NREGA [National Rural Employment Guarantee Act] workers, agricultural workers and pension holders. Bank staff have done a marvellous job in these adverse circumstances… thousands of bank employees worked almost through the night on November 9 and 10.

As the crisis unfolded and assumed serious proportions, Modi announced that business correspondents would fill the void. What are your views on this?

This ought to have been announced on the first day…it would have helped people. Although I am opposed, in principle, to the concept of such correspondents, such a move would have made sense. I know that in many places these correspondents charge commission from account holders, but that is not so rampant in the south. I know that these correspondents are charging commission to open accounts, and in some places they have even disappeared with cash that belongs to the banks. There are also agents operating under the umbrella of a national correspondent: a company of the Anil Ambani Group, for instance, is a national correspondent for SBI.

What is the extent of cooperation between banks, the Income Tax Department and law enforcement agencies?

The software in the system in banks is such that any deposit of more than Rs.2.5 lakh, even if made in multiple transactions, ensures that a report is automatically generated. But this is possible only within a single bank. The problem is that there is no mechanism to match such transactions in other banks. That is a loophole. In any case, most of the huge transactions must be taking place in private banks.

What price is the banking system paying for this exercise?

Banks have suspended all normal operations. All attention is on dispensing and collecting cash; all other operations have come to a standstill. We are all doing work in which there is no revenue earned for the bank. Lending, which is our main business, is just not happening.