Conspiracy theories over leakage of demonotisation move abound. Most are based on anecdotes and stories.
However, one bit of factual information is puzzling. The 2nd fortnight of Sept (Sep 16-30) saw Rs 3 lakh cr of time deposits was followed by liquidation of Rs 1.2 lakh cr of these right after the fortnight. This movement in deposit data has not been seen for a while and tongues are wagging on this.
Ishan Baskhi and Nitin Sethi of BS have an update on the various views and counterviews.
From September 16 to 30, a staggering Rs 3.03 lakh crore of time deposits — fixed and recurring — were made at banks. This has never happened in any fortnight since January 2001.
September 16 is also the date from which the Reserve Bank India (RBI), in a rare later decision, chose to implement an incremental Cash Reserve Ratio rule of 100 per cent, retrospectively. RBI said this was done to impound additional cash flowing into banks, assessing the impact of demonetisation, which was announced only on the night of November 8. Clearly, then, RBI was aware that enough deposits – liquidity in bank parlance – were available with banks from September 16.
What is also intriguing is that in the fortnight after September 30, as much as Rs 1.2 lakh crore of time deposits were liquidated. This is again unprecedented. More, these liquidated deposits do not show up in saving or current accounts in the fortnight report of October 14. In fact, these latter deposits also dipped by Rs 1.22 lakh crore over the same fortnight.
To understand this, Business Standard sent detailed queries to the ministry of finance and RBI, on these series of exceptional deposits and withdrawals. Neither replied. Some official explanations have come. Yet, some senior economists and bankers have asked either for investigations or more factual detail.
Finance Minister Arun Jaitley dismissed these exceptional deposits as a ‘marginal spike’, attributing it to dispersal of pay commission arrears from August 31 to September 15. He rubbished suggestions that these deposits were a result of news about the coming demonetisation leaking out.
Jaitley’s justification can at best explain a fraction of the increase in deposits. The payout on account of the pay commission till the first week of September was roughly Rs 45,000 crore, according to the chief economic advisor (CEA) of State Bank of India (SBI), and Rs 34,600 crore, according to a study by India Ratings and Research. More, these payouts would first be transferred to employees’ salary accounts and should, thus, first reflect in an increase in demand deposits. Even assuming every beneficiary converted this windfall into time deposits, the explanation falls short.
Likewise there are multiple views and ideas. This clearly requires an independent investigation at Government/RBI level.
These diverse hypotheses have led some to demand greater detail and even investigation. Pronab Sen, former chief statistician to the government, says: “This should have been investigated then and should be investigated now. As far as I know, it is unprecedented. I can’t think of any event which would have led to it.”
An ex-board member of RBI, Vipin Mallik, is of the same mind. “In my experience, whenever there has been a scale disproportionate to trend, it is a case for investigation.”