Relflections on demonetisation, a year later
While demonetization came as a surprise, the silver lining is that it shifted our goalpost on innovation and customer service.
There’s no denying that 8 November 2016, will go down as a watershed moment for our country. Demonetization not only had an impact on the citizens of India and the financial sector as a whole but also tested the ability and efficiency of the banking network. Responding to such a massive challenge was never going to be easy for banks, both collectively and individually.
While demonetization conjures up images of long serpentine queues outside banks, the other reality was that of the staff spending many sleepless nights inside bank branches and offices, which several of my colleagues in the industry will vouch for.
American scholar and author Brené Brown has rightly said, “Vulnerability is the birthplace of innovation, creativity and change.” In many ways, demonetization tested that theory within the banking industry. Take, for instance, logistics and cash management. Banks had to move large amounts of cash at breakneck speed to towns and cities where currency was scarce during this period. Even in extreme situations, the industry did not shy away from airlifting currency from towns where there was a surplus and efficiently moved money from state to state by air and road in record time.
If reaching currency notes to remote corners was one problem, banks had to contend with another—updating the information technology (IT) systems overnight to cope with the gigantic task of managing the day-to-day transactions. Not only were the branch staff working long and arduous hours, reconciling cash collection with the ledger and tallying/counting it, the IT department also had to rejig the systems to adapt to the changing requirements on a day-to-day basis. This meant the banks had very little time to back-test the process and ensure smooth roll-out of services the next morning.
Besides, banks had to make quick decisions to enable customers to attune to the temporary disruption in their business activities. For instance, our large business correspondent network in rural India helped us to disburse short-term cash loans to customers, as it was the only way they could receive new currency. Mobile point of sale (PoS) machines were dispatched to various locations to allow people to withdraw cash from their accounts.
Another mammoth exercise was to drive people to use digital payment systems. Overnight, digital and fintech teams had to gear up IT systems to be able to process the explosion in online digital transactions. We were able to use the Aadhaar enabled payment system platform to provide immediate cash or loan facilities to millions of micro-finance customers who were hampered by the cash crunch.
To ensure that more customers, particularly small businesses, embraced digital payments, banks encouraged the use of PoS machines. As a result, PoS machines doubled to three million in just one year since demonetization. While there is still a long way to go on the digital front, the important part is that more small businesses and merchants are opting for digital payments through PoS machines and mobile wallets than before. Online services such as United Payments Interface are further boosting digital payments.
Demonetisation was a strong statement of intent to formalize the economy. A year on, it has presented the banking industry with significant long-term opportunities to scale up operations and strengthen customer services. In the years to come, we can expect an explosion of digital payment tools which will increase India’s digital footprint, accelerate financial inclusion and usher in transparency in banking operations. This, to my mind, are the big positives from demonetisation.
Needless to say, demonetisation tested the banking system to the limits and the industry responded with military-like precision to accomplish the gargantuan task of remonetisation.
Vishwavir Ahuja is managing director and chief executive officer of RBL Bank Ltd.