On Monday, heads of currency management divisions in all banks received a confidential communication from the Reserve Bank of India (RBI) to be present at the headquarters. Next morning they were given charge of a double-locked currency chest, which they were told contained currency notes of the new denomination: Rs.2,000.
They were instructed not to speak to anyone and open the chest only after they received the go-ahead from RBI.
On Tuesday evening, they were given the green signal—after the government went public with its move to demonetize currency notes of the denomination of Rs1,000 and Rs500. It was only then that they discovered that in addition to currency notes of the denomination of Rs2,000 there was also the new Rs500 note.
Clearly, everyone in the financial sector, including bank chairmen, was caught by surprise—something that was critical in catching tax evaders unawares.
“We were called for a 7PM meeting (with RBI). For an hour, we chatted about this and that including S4A (Scheme for Sustainable Structuring of Stressed Assets), till at 8pm they switched on the TV and told us to listen to the PM’s speech,” said the managing director of a state-owned bank, who attended the meeting.
The entire plan was in the works for about six months, said people aware of the process. In fact, the design of the notes was finalized and the process of printing started three months ago.
This was an idea which originated with Prime Minister Narendra Modi and was intended to be a follow-up to other steps to curb black money such as the income disclosure scheme, they said. Targeting black money was a key element of the PM’s election pitch in 2014; the ruling Bharatiya Janata Party had lately become vulnerable to political attacks for failing to deliver on the promise.
Only a handful of officials from the Prime Minister’s Office, finance ministry and RBI apart from Prime Minister Modi, finance minister Arun Jaitley and the then RBI governor Raghuram Rajan were in the loop, said a senior finance ministry official on condition of anonymity.
Also read: Narendra Modi: The risk taker
“The news about the printing of Rs2,000 currency notes leaked from the printing press in Hyderabad sometime back. But still no one was able to make the connection that India is going to go ahead with demonetisation,” the official added.
The design of the notes was finalized and the process of printing started three months ago, the people quoted above said on condition of anonymity. Till date, around 3.5 billion pieces of the Rs2,000 currency notes have been printed. That is about half of the 6.3 billion pieces of the Rs1,000 denomination that were in circulation at the end of March.
“As far as Rs500 notes are concerned, only a few million have been printed as compared to the 15.7 billion notes in circulation earlier,” said another person aware of the development.
The RBI had, in the run-up to the demonetization, actually been serving up hints—as in its warning on a sharp spurt in circulation of Rs100 currency notes and counterfeits—but no one connected the dots.
Also read: Modi’s money mantra: Cash is no longer king
Then on 2 November, it directed banks to dispense more Rs100 notes through ATMs within the next fortnight, claiming it was following up on an earlier request in May.
Separately, on 27 October, the central bank put out a warning about fake currencies on its website. It asked banks to put entire banking areas under CCTV surveillance and ensure that cash receipts in the denominations of Rs100 and above are not put into re-circulation without the notes being machine-processed for authenticity.
On Wednesday, a day after the big announcement, the helpline phones in North Block were ringing non-stop with worried enquiries from across the country as the news began to sink in.
“We are getting a lot of calls from south India. Most complaints are regarding private hospitals not accepting the high value currencies. We are advising them to either pay through cheque or make an online payment,” a finance ministry official said on condition of anonymity.