Swiping it right

Demonetization was the biggest disruption in 2016-17 for the banking system. Overnight stacks of new notes in currency chests of banks became invalid. Core banking activity was halted to facilitate the return of old notes by the public.

Bankers say almost the entire Rs 15 lakh crore (the total value of Rs 500 and Rs 1,000 notes declared invalid) that was in circulation was back into the system by end of December 31, 2016, with exceptions being the Indian currency in the neighbouring countries such as Bhutan or Nepal, or with NRIs, or forgotten cash stashed away somewhere.

Rajnish Kumar, MD, State Bank of India (SBI), said, “Demonetization was certainly a once-in-a-lifetime experience where overnight more than three-fourth of the currency was declared invalid.”

But the positive fallout, Rajnish said, is that digital transactions have multiplied. “We are launching some specific digital products which are the first of its kind. Transparency has increased. Electronic payments increased then tapered down a bit when cash started flowing in, now it is flattish, but will grow.”

In October 2016 the total number of electronic transactions were Rs 11,56,700 crore; they peaked to Rs 19,38,780 crore in March 2017, and came down to Rs 15,16,240 crore in April; they went up again in May to Rs 16,00,040 crore, according to the consolidated electronic payments data by RBI.

SBI's research unit Ecoflash, said, “If demonetization had not happened, it would have taken three years more for credit and debit cards transactions on point of sales terminals to reach the current level of Rs 70,000 crore. We believe that increasing the number of PoS terminals and ease of doing digital transaction will increase this level further.”

Then came the goods and services tax (GST), which made all banking services like cheque books, ATM withdrawals costlier as the service tax had moved from 15% to18%.

Jairam Sridharan, chief financial officer, Axis Bank, said, “Since banking is the centre of the economy, it is one sector that has seen the impact of all these events. The short-term disruptions to the economy that each of the events has caused will turn positive in the long term.”

The compliance levels for banks have climbed. From filing just two returns annually, they may have to file at least 61 returns per year for every state they are present in, according to chartered accountants.

“GST has brought in a number of institutions from the unorganised sector to the organised sector, many payments in the informal sector have got into the electronic mode and more cash flows have moved to the formal sector which improves transparency,” said Sridharan.

The other big upheaval was in May this year when the government passed the NPA Ordinance empowering the RBI to direct banks to tackle the NPA problem by either intervening directly or by appointing oversight committees which will provide their stamp of approval and eliminate the fear of vigilance enquiries on the bankers. After three retired bankers from IDBI Bank got arrested for sanctioning an unsecured loan to Kingfisher Airlines, decision making in the sector had come to a standstill. So the NPA Ordinance thawed the ice and resolutions began to pick steam.

“The last and this financial year saw big upheavals in the banking sector. The Insolvency and Bankruptcy Code 2016 will go a long way in changing the way business is undertaken in the country,” said Rajnish Kumar.

TAKING A  CASHLESS FLIGHT

• If demonetization had not happened, it would have taken three years more for credit and debit cards transactions on PoS terminals to reach the current level
   
• The compliance levels for banks have climbed. From filing just two returns annually, they may have to file at least 61 returns a year for every state they are present in
   
• The other big upheaval was the NPA Ordinance empowering the RBI to direct banks to tackle the NPA problem. Now,  resolutions began to pick steam