India Introduces New Restrictions On Deposits Of Demonetized Money
Consumers across India were caught in confusion after the Reserve Bank of India launched a fresh set of restrictions on cash deposits of demonetized notes, adding further suffering to individuals who are dependent on cash.
The new set of rules states that individuals will be able to make deposits of bank notes above INR 5,000 or $74 only once until the official deadline of December 30. The depositors, however, must provide a satisfactory explanation to two bank officials as to why the bank notes were not deposited earlier. Only then will the bank officials accept the deposit. After the said deadline, no more bank notes can be deposited.
Also under the new guidelines, deposits in excess of INR 5,000 will be credited only to accounts that are identified and verified by the banks through an official verification process that involves submission of official documents.
The latest restrictions were introduced in order to tackle the spread of black money and corruption in the country. The inconvenience, however, fell on the people who have already expressed dissatisfaction regarding the matter. They have complained on the additional layer of bureaucracy to the existing inconvenient process of exchanging bank notes and depositing cash into accounts.
Since the announcement of the demonetization of 500 rupees and 1,000 rupees on November, people have flocked outside banks to exchange old currency notes for new ones. While analysts and celebrities have shown support to the government's move, the public have been getting more and more restless.
In an email with CNBC, Kannan Venkataramani, senior portfolio manager Asian Equity at NN Investment Partners, stated that the move will have a short-term negative impact.
"The demonetized notes can be exchanged at banks, but the government has imposed daily and weekly limits. Also, with banks requiring a photo identity proof before changing money, individuals who never declared the money in the first place may find it tough to prove why they need to change larger sums. That means a portion of the population might see part of their unaccounted wealth evaporate overnight, creating a negative wealth effect."
The move is expected to create a long-term gain as it is believed to have a positive impact on the government's finances, therefore boosting economic growth.