Demonetisation :
Consequent to the announcement made by the Honourable Prime Minister, Shri. Narendra Modi on 8th November, 2016 regarding the withdrawal of the existing currency notes of denomination of Rs. 500 and Rs. 1,000, there have been a series of announcements and notifications by the RBI.
Some of the main notifications / announcements, which are relevant are summarised hereunder:
Bank Notes of denomination Rs. 500 and Rs. 1000 (hereinafter referred to as Specified Bank Notes (SBN)) ceased to exist as legal tender effective from November 09, 2016, vide Official Gazette Notification No. 2652 (hereinafter referred to as the Notification) dated November 08, 2016.
The Specified Bank Notes of aggregate value of 4000/- or below were exchanged for any denomination of Bank notes having legal tender, with a requisition slip in the format specified by RBI and proof of identity as declared in the Notification.
The limit for exchange of Specified Bank Notes, over the counter was increased from Rs. 4000/- to Rs. 4500/- w.e.f 14th Nov 2016, vide notification no. DCM (plg) No. 272 / 10. 27. 00/2016-17 dated November 13, 2016.
The limit was again revised from Rs. 4500/- to Rs. 2000/- w.e.f November 18, 2016, vide RBI notification no. DCM (plg) No. 1302/10.27.00/2016-17 dated November 17, 2016.
The Exchange Facility was finally withdrawn and permitted only till the end of business hours on November 24, 2016 as mentioned by Government of India in the Notification earlier. However, the exchange facility has not been withdrawn from RBI Offices.
The Notification stated that no limit was specified on the quantity or value of the Specified Bank Notes to be credited to the account maintained with the branch by a person, provided the Specified Bank Notes were tendered in accordance with standard banking procedure and on production of valid Proof of Identity. However, where compliance with extant KYC norms was not complete in an account, maximum value of specified bank notes to be deposited was restricted to Rs. 50,000/-.
Cash withdrawal from a bank account over the counter was restricted to Rs. 10,000/- per day subject to a weekly overall limit of 20,000/- as per the Notification.
From 14th November, 2016, the weekly limit of Rs. 20,000/- for withdrawal was increased to Rs. 24000/- vide notification RBI/2016-17/129 DCM (plg) No. 1272 /10. 27. 00/2016-17 dated November 13, 2016.
Notification no. RBI/2016-17/158 DCM (Plg) No.1424/10.27.00/2016-16 dated November 25, 2016 instructed banks to continue allowing their existing customers to withdraw cash from their accounts upto Rs. 24000/- a week, till further instructions are given.
RBI vide notification no. RBI/2016-17/142 DCM (Plg) No.1317/10.27.00/2016-17 dated 21st November, 2016 allowed the current/overdraft/cash credit account holders (operational for the last 3 months or more) to withdraw cash up to Rs. 50,000/- in a week subject to certain terms and conditions. The same facility was extended to traders registered with APMC markets vide notification no.RBI/2016-17/146 DCM (Plg) No.1323/10.27.00/2016-17 dated 21st November, 2016.
In the Notification withdrawal from ATM was restricted to Rs. 2000/- per day per card up to November 18, 2016 which was raised to Rs. 4000/- per day per card from November 19, 2016.However there was no such clarification by RBI on the increment of limit to Rs. 4000/- on November 19, 2016 and so the limit stood the same as before i.e. Rs. 2000.
Vide RBI Press Release – 2016-17/1199 dated November 14, 2016 all charges of ATM usage were waived from November 10, 2016 till November 30, 2016. 2.121 Apart from the general notifications specified above, there are certain special announcements / notifications which have been issued as a corollary to the demonetisation scheme, which are summarised hereunder:
i. Pradhan Mantri Jan DhanYojna Accounts (PMJDY):
Certain limits as a matter of precaution were set on the operations of PMJDY accounts by RBI vide notification RBI/2016-17/165 DCM(plg) No 1450/10.27.00/ 2016-17 dated November 29, 2016 as under:
Fully KYC compliant account holders to withdraw Rs. 10,000/- from their accounts, in a month. Branch managers may allow withdrawals beyond Rs. 10,000/- only after ascertaining the genuineness of such withdrawals.
Non KYC compliant account holders to withdraw Rs. 5,000/- per month from amount deposited through Specified Bank Notes after November 09, 2016 within the overall ceiling of Rs. 10,000.
ii. NRI / NRO Accounts
Specified bank notes were allowed to be deposited in the NRO accounts. If someone is not in India then written authorization to enable another person to act on their behalf was accepted.
iii. Withdrawal for Marriage Purposes
Notification RBI/2016-17/145 DCM (plg)No. 1320/10.27.00/21-17 dated November 21, 2016 empowered the account holders to withdraw a maximum of Rs. 2,50,000/- from a single account if there is a marriage in the house on or before December 30, 2016 on providing sufficient KYC documents.
iv. Withdrawal by Farmers
Farmers were allowed cash withdrawals of Rs. 25,000/- per week from their loan or deposit accounts, which were KYC compliant (clarified by FAQs last updated on December 1, 2016)
v. CRR and Related Matters
As per circular RBI/2016-17/159 DBR.No.Ret.BC.41/12.01.001/2016-17 dated November 26 ,2016, a directive was issued under section 42(1A) of the Reserve Bank of India Act, 1934 requiring all Scheduled Commercial Banks/ Regional Rural Banks / all Scheduled Primary (Urban) Co-operative Banks / all Scheduled State Co-operative Banks to maintain with the Reserve Bank of India, effective from fortnight beginning November 26, 2016 an incremental CRR of 100 per cent on the increase in NDTL between September 16, 2016 and November 11, 2016.
The incremental CRR being a temporary measure was to be reviewed by RBI onDecember 9, 2016 or earlier.
On 2nd December 2016, the Government of India has on the recommendation of the Reserve Bank of India, decided to revise the ceiling for issue of securities under the Market Stabilisation Scheme (MSS) to Rs 6 lakh crore as against the earlier limit of Rs. 30,000 crores.
The following are some of the key control and risk issues which are likely to be encountered, in addition to the existing issues, which need to be kept in mind whilst planning and executing the audit:
Surge in opening of new accounts to deposit cash which may not be fully KYC compliant.
Possibility of existing accounts, especially dormant accounts, PMJYD accounts etc. being used for money laundering.
Reviewing the insurance coverage for cash and cash handling and transit coverage.
Increase in defaults due to initial expected slow down in economic activities.
Possibility of increased fake notes being deposited.
Slippages in limits of withdrawals and deposits not being detected.
Collusion of staff with customers in possible laundering and other illegal activities.