Rattled RBI recalls curbs on Rs 5,000 plus cash deposits

New Delhi: The Reserve Bank of India (RBI) partially withdrew its Monday’s circular for banks to question those depositing more than Rs 5,000 in junked currency, as the move had quickly led to mounting criticism both by the public and Opposition parties.

The circular had diluted the government’s earlier assurance that banks would accept Rs 500 and Rs 1,000 notes — scrapped last month — by December 30, and people should not rush to deposit them. Bank officials had also told India’s central bank to retract the order as it was not possible to investigate angry customers.

In a fresh circular, the RBI said people can deposit demonetised currency above Rs 5,000 multiple times in accounts verified with know-your-customer (KYC) documents, and will not need to explain any reason to bank officials. However, customers with non-KYC accounts will be subjected to stiff conditions earlier imposed by the RBI.

The earlier circular had said people can bank more than Rs 5,000 in old notes only once till December 30, subject to questioning and a satisfactory explanation for scrutiny at a later stage. The government had then said it wanted to reduce queues at banks, already facing crowding after the recall of high-value bills led to a cash crunch.

The central bank did not provide any reason for the withdrawal. “The government told us to withdraw the circular,” news agency Reuters quoted an RBI official as saying.

This is one of the many circulars withdrawn by the RBI after Prime Minister Narendra Modi announced to a stunned nation on November 8 that he would scrap 86 per cent of the cash in circulation to fight black money and fake currency.

“The RBI is now the Reverse Bank of India, changing demonetisation norms 126 times in 43 days,” said Congress spokesperson Randeep Surjewala. “The RBI is behaving like a headless chicken. Now we can see the damage Raghuram Rajan’s removal (as RBI governor) has done,” tweeted senior Supreme Court advocate Prashant Bhushan.  

After Monday’s circular, many banks started refusing to accept demonetised currency above Rs 5,000 fearing that they could later face questioning from the income-tax department (I-T) or the enforcement directorate (ED).

This resulted in inconvenience to the general public, and several of them questioned why after asking people not to rush to deposit cash the government was now seeking an explanation.  

The All India Bank Officers’ Confederation (AIBOC) had demanded complete withdrawal of the order as bank staff faced public wrath.

Union finance minister Arun Jaitley had on Monday and Tuesday assured people that there would be no questions asked to customers who would make one-time deposits above Rs 5,000. However, in the absence of any written order bank officials were  forced to follow the RBI guidelines.