NRIs with scrapped notes left in the lurch

dubai - Money changers have flatly refused to accept the banned notes

As non-resident Indians in the UAE reacted in disbelief on the shock move by New Delhi to withdraw large denomination bank notes from circulation to fight corruption and tax evasion, many remained confused on how to get their Rs500 and Rs1,000 notes exchanged, with money changers flatly refusing to accept the scrapped notes on Wednesday.

Since an NRI is legally allowed to take abroad Rs25,000 of currency notes, tens of thousands of expats in the GCC are left in the lurch with varying amounts of demonetised high-denomination notes.

"It came like a bolt from the blue. As most of us keep large denomination rupee notes for ease of carrying, it would have been fair on the part of the government to give us a window to convert them into new notes," said a bank employee.

Sudheer Kumar Shetty, president of UAE Exchange, said NRIs can carry scrapped notes back home and exchange them with new notes at banks in India until December 31 this year. After that, until March 31, 2017, such notes can also be exchanged at all outlets of the Reserve Bank of India, he said.

Shetty said the demonetisation of Rs500 and Rs1,000 notes was aimed at curbing issues of unaccounted money, counterfeit notes and corruption. "Such a move will eventually help in reducing inflation and cost of necessities. This will bring down the overall cost of living, which will help the common man and the genuine tax-payer."

Amid confusion in India over ATMs being able to disburse large amounts of Rs100 notes when they reopen on Friday, Finance Secretary Ashok Lavasa clarified on Wednesday that new currency notes of Rs500 and Rs2,000 value will also be available for people to withdraw.

"There will not be any problem as it [Rs500 and Rs2,000 notes] will be available from November 11 in all ATMs," Lavasa said.

The government had already announced on Tuesday that while ATMs will be shut for two days, once they reopen on Friday, a person can withdraw up to Rs2,000 per day through a single card till November 18. Thereafter, the limit will be increased to Rs4,000 per day.

Adeeb Ahamed, CEO of Lulu Exchange, said the dramatic move was taken by Prime Minister Narendra Modi to curb the spread of black money and corruption in the country. "It is also an important step towards cashless payment in the form of online, card and mobile transactions. It will also further strengthen the Indian government's 'Jan Dhan Yojana' and increase bank account enrollment by citizens across the length and breadth of the country."

Ahamed said initially, there would be a hesitancy to embrace this change, but over time it will clear out since the Reserve Bank of India has drawn a timeframe and given clear guidance for exchanging these notes and depositing them in savings or bank accounts.

"In the case of expats, there would be a limited impact since it would affect only those who have the particular denominations in hand that have gone out of circulation. We expect the RBI to give out guidelines on how they would be able to exchange those currency denominations soon," said Ahamed.

Kamal Vachani, Group Director, Al Maya Group, said the move would help the banking sector with sufficient liquidity. "However, real estate will be hit badly. The rupee can appreciate. Overall, the move will have a short-term negative market impact but official liquidity will rise in the system as people will deposit cash.

In the medium to long term, interest rates will fall as banks will be flushed with money with no incremental borrowers. There may be little confusion in the market but it will be good for the rupee."

Sudhesh Giriyan, COO, Xpress Money, said the move would regulate black money and undeclared liquid assets while curbing grey finances.

"We believe that all stakeholders in the current global economic system have a responsibility to stamp out dubious sources of revenue. And while we understand that some of our valued customers might be temporarily inconvenienced by this decision, we support this move because it dovetails with our efforts to set new standards for transparency in the money transfer and remittance industry," said Giriyan.

Shetty said those who do not have bank accounts would need to open one with this move. "It will further spread the 'Jan Dhan Yojana' of the government to bring the unbanked population into the financial mainstream, propelling the journey towards the government's vision of complete financial inclusion. It can also be a strong step towards the aim of being a cashless society."

An official at Mastercard said the ban on high-value currency notes fundamentally addresses the underlying 'cash engine' that drives the shadow economy. It will enable further growth in the Indian economy by encouraging cashless transactions and reducing the crime rate.

Analysts said the move is likely to curb the high use of fake notes.

The middle classes and companies who operate in the formal economy, however, will benefit from a reduction in the cost of doing business due to a drop in backhand payments.

Banks and ATMs will reopen on Thursday when customers will be able to swap their old notes and withdraw the new 500 rupee and 2,000 notes - but there will initially be a limit on the value of transactions. A newly designed Rs1,000 bill will be also gradually reintroduced in coming months.

- issacjohn@khaleejtimes.com