Currency Ban Is Tearing India’s Rural Banks Apart

Currency Ban Is Tearing Rural Banks Apart


On 8 November this year, the manager of a small semi-rural government bank branch in eastern Uttar Pradesh sat down for dinner in front of his television and found that Prime Minister Narendra Modi had destroyed his cash stock.

“I froze when I heard that Rs 500 and Rs 1,000 notes would be phased out in four hours,” he said, requesting anonymity to speak freely, “We had almost nothing in small notes.”

His branch had a little over Rs 6 lakh in Rs 100 notes, another Rs 5.5 lakh in 20s, and about Rs 90,000 in Rs 10 notes, out of a total chest of over Rs 60 lakh.

“We had no fifties,” he said ruefully, “and that was just the beginning.”

 (Photo: Rahul Gupta/The Quint)
(Photo: Rahul Gupta/The Quint)

In 3 Weeks Since Notes Ban, Bank In Rural UP Received Cash Only On 7 Days.

India’s banking system has seized up under the strain of Prime Minister Modi’s decision to phase out high denomination banknotes with immediate effect. Its effects are most visible in rural India. The eventual benefits of demonetisation, economists say, are uncertain; but the costs are clear and visible.


A startling 81 percent of Indians in the countryside live in settlements without a brick and mortar bank, according to figures put out by the Reserve Bank of India; the corresponding number for urban India is zero.


Unbanked areas, which account for 93 percent of rural India’s geographic expanse, are serviced by Rs 1.2 lakh “business correspondents”, young men like 30-year-old Dhruv Narayan Yadav who act as one-person bank counters in village markets and bazaars.

Since 8 November, villagers desperate to exchange their defunct notes for valid currency have swamped the few functional banks and correspondents like Yadav, stretching an already strained system to breaking point.
What follows is an account of two lives: one semi-rural bank branch manager, one young business correspondent, and their frantic efforts to stave off catastrophe even as the system intended to support them stuttered and failed.

 (Photo: Rahul Gupta/The Quint)
(Photo: Rahul Gupta/The Quint)

On 9 November, the day after PM Modi’s announcement, banks across the country were closed to the public. The bank manager spent the day on the phone with his circle office, pleading for cash.


We asked for about Rs 25 lakh to service our approximately 40,000 account holders. Usually, during festive season, we have an average payout of Rs 40 lakh a day.

 Unbanked areas in India are served by “business correspondents”, essentially “human ATMs” operating out of small kiosks. (Photo: Esha Paul/The Quint)
Unbanked areas in India are served by “business correspondents”, essentially “human ATMs” operating out of small kiosks. (Photo: Esha Paul/The Quint)

The next morning, as thousands queued up to exchange their money, the cash came in.

“Our circle office had sent us Rs 4 lakh.”

Staff were called back from leave, everyone including the bank manager manned the cash counters. Some customers got Rs 2,000, some got Rs 1,200, some got Rs 700. At 9 pm, when the branch finally closed, the cash counting machine packed up under the strain. “We stopped work and waited for a replacement.”

The banker went home at 3:00 am.

The next day, he asked for another Rs 25 lakh. “We got Rs 4 lakh.”

By now, people were desperate. The wedding season was beginning – everyone needed cash.

We informally told people, ‘come after banking hours with a copy of your marriage card as proof, we’ll try to give you Rs 5,000.’ What could we do?

Bank Manager

After a while, the banker felt bad asking his head office for more money, “Because we knew that every single rural bank was going through the same thing.”

 (Photo: Rahul Gupta/The Quint)
(Photo: Rahul Gupta/The Quint)

Dhruv Yadav, the SBI business correspondent (BC), was still in bed on 9 November when his bank manager called. As a correspondent in Badya Buzurg village, Yadav works like a human ATM machine: account holders can walk up to his small shop in the market and deposit up to Rs 20,000 a day with him or withdraw a similar amount.

Yadav records the transactions on his computer and in the passbooks of his customers.

“But now, we were told, you can take a deposit of only Rs 2,000 and you can give out only Rs 2,000. Also you can’t exchange any notes.” As he was leaving, the branch gave him some cash too, in case his customers in the village needed to withdraw money from their accounts.

“They gave me a total of Rs 12,000,” he said, “I distributed the money between 25 people.”

An SBI customer service centre in rural UP. (Photo: Esha Paul/The Quint)
An SBI customer service centre in rural UP. (Photo: Esha Paul/The Quint)

He asked people what they needed the money for. For instance, those buying vegetables got Rs 500, some got even less.

“A woman came up to me and said, ‘my child has pneumonia’,” Yadav recalled, “If you don’t give me money, he’ll die.”

The only person who got Rs 2,000, he said, was that mother. “I would have given her more, but I couldn’t break the rules.” Then he took her husband’s number and said he would call her when he got more money. A week passed; Yadav is still waiting for the money.

In the meantime, 30 people across India died waiting to get hold of their own money.

On 14 November, Finance Secretary Shaktikanta Das told the press, “there is absolutely no reason for the members of the public to feel any kind of panic” as there was enough cash in the banking system.


Yet in Uttar Pradesh, the bank manager was making hard decisions. On 16 November, a week after demonetisation began, his branch finally got Rs 20 lakh. So they decided to give cash to 1,000 account holders. “It’s a trade-off,” he said, “Give lots of people some money, or less people more money.”

The long working hours were putting a strain on his staff. The queue outside the bank would begin at 5 am, four hours before opening time. Customers were turning hostile, bank staff were so stressed they would occasionally erupt into shouting matches with each other. Some now had high blood pressure, others had low blood pressure.

“Modi says the drive is also to reduce counterfeit currency,” he said, “but we are so short-staffed, we have no time to check each note. Cash is stacked into bundles, shoved into sacks and sealed.”

 (Photo: Rahul Gupta/The Quint)
(Photo: Rahul Gupta/The Quint)

What if a bundle of 1,000s turned out to be fake, the banker worried, would they force him to pay out of his savings?

As the date of his retirement draws closer, the banker said he is increasingly reminded of a joke from the time Indira Gandhi nationalised the banks in 1969.

“When the dogs would bark in the dead of night, people would say – go to sleep; it’s probably just a banker going home.”

“It feels like we are back in those days again.”

With the government pushing farmers and the rural population to open bank accounts in the wake of the currency ban, the situation at this bank in rural Uttar Pradesh, however, has not improved even after 35 days since the cash ban was announced.



Along with thanks and compliments to the sources for the shared data

Creative Commons Copyright © Arrested Developments 2015


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