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[MUMBAI] Indian government's surprise move to ban high-denomination banknotes on Nov 8 has seen lenders lure 2 trillion rupees (S$41.8 billion), as customers across the nation queue for hours to deposit the old bills.
The decision has also put tremendous pressure on the banking system to replenish the funds, as the banned bills accounted for 86 per cent of money in circulation. More than 70 million transactions were recorded up to mid-day of Nov 12, the Ministry of Finance said in a statement late Saturday. There's adequate money in the currency chests at more than 4,000 locations and re-configuration of dispensing machines to disburse new notes will be completed within two weeks, Finance Minister Arun Jaitley said.
Lenders have been caught out by Prime Minister Narendra Modi's unexpected and widely-praised announcement of the withdrawal of 500-rupee and 1,000-rupee notes, part of a crackdown on tax evasion and the underground economy. The Reserve Bank of India on Sunday urged the public not to be anxious and avoid going to banks repeatedly to draw and hoard cash.
"A big regret is that people are getting inconvenienced, but currency replacement of this magnitude will cause some problems," Mr Jaitley said at a press conference in New Delhi on Saturday. "There are long, but orderly queues. Such a big currency replacement can't be done overnight." Mr Jaitley urged people to wait for a few days and to conduct financial transactions using electronic transfers, checks and credit and debit cards.
Mr Modi is seeking to fulfill his election promise of recovering illegal income, locally known as black money. The government will take more steps to curb tax evasion, including action against benami property, he said at an event in Goa on Sunday. Benami is property actually owned by someone but held in the name of a third party.
Even so, the cash crisis has seen people standing for hours in long lines to exchange the now-defunct notes, and political rivals of Mr Modi's Bharatiya Janata Party relaying images of the chaos on social media.
The government deliberately didn't reconfigure the more than 200,000 cash machines beforehand to help keep the announcement a secret, Mr Jaitley said. The machines are being re-calibrated so that they can dispense new 500 and 2,000 rupee notes, which do not fit into the existing cash trays in the ATMs.
State Bank of India, the country's largest, got deposits worth 478.68 billion rupees, Mr Jaitley said. It handled 543.70 billion rupees of cash transactions in all, including deposits, withdrawals and exchange of banknotes, starting Thursday through 12.15 pm. on Saturday, Mr Jaitley said. The government-owned lender and its associates account for about 20 per cent to 25 per cent of the nation's banking system, he said.
"The Reserve Bank assures members of the public that enough cash in small denominations is also available at the Reserve Bank and banks," the central bank said in its statement Sunday. "Cash is available when they need it." The RBI's presses are printing banknotes at full capacity to ensure availability, it said Saturday.
About 120,000 out of the 200,000 ATMs are operational, and presently only 100 rupee notes are being disbursed from the machines, according to the finance ministry's statement Saturday. To overcome cash-flow problems people are facing, the government allowed the use of old banknotes to pay court fees and utility bills until Nov 14. It had earlier also suspended collection of tolls on national highways through the same period.
"The first few days are going to be a period of inconvenience, but long-term advantages of this are to the overall economy," said Mr Jaitley. "There is no mismanagement at banks. Had that been the case then not so many people would have been serviced."